Narrowing Loan-to Value Ratio (LTV): Gangnam in Ease, Gangbuk in Frown

Park, a 37 year-old salary worker, moved into a 33-pyeong apartment located in Sangye-dong, northeastern Seoul by means of a mortgage loan amounting to 79.20 million won from “bank A” three years ago.

Park paid a visit to a person in charge of loaning at “bank A” to extend the expiration after receiving a call informing the loan repayment has expired.

“The loan-to-value ratio (LTV) has been lowered from 80 percent, three years ago, to 60 percent, applying only to an extended expiration date. You can extend your expiration only when you repay 4.2 million won, exceeding 60 percent or make an extra payment of 0.2 percent annual interest rate,” a bank official said.

The narrowing of LTV is due to Park’s apartment value inching up from 129 million won to 165 million won during the past three years, which ultimately lead to a lower mortgage loan from 79.2 million won to 75 million won.

Meanwhile, Chung, a 43 year-old man, having bought a 33-pyeong apartment in Daechi-dong, southern Seoul in the similar period as Park through a mortgage loan amounting to 180 million won from “bank A,” extended his expiration without partial repayment or extra interest rate.

This was because the lending limit was beyond 0.3 billion won, even under the new LTV, as the price of the apartment Chung purchased, compared to three years ago, had spiraled upward from 255 million won to 605 million won.

“Bank A” official even encouraged Chung to receive more mortgage loan, saying he had sufficient lending limit.

Amid this, commercial banks are tightening up its conditions on expiration extension of mortgage loans where residents in northern Seoul are in bad condition while southern Seoul residents are sidelined by the regulations. Government countermeasures against real-estate speculators operating in the Gangnam area (southern Seoul) are dampening the situations of bona fide residents in the process.

Regarding mortgage loans recently faced with expiration, Kookmin Bank is requiring those who have a low rating “level of expiration extension” - estimated on the basis of repayment ability - to repay some part of the loaned money, according to a financial sector October 27.

When extending an expiration of a mortgage loan, Hana Bank will make lenders repay part of their loaned money or pay extra interest of 0.2 - 0.4 percent if LTV exceeds 60 percent under the newly-estimation of LTV.

Shinhan Bank, on the other hand, is requiring partial repayment if LTV exceeds 80 percent.

Woori Bank is extending expirations under the existing condition by the end of this year, but has plans to apply LTV to new loans in the future.

Chi-Young Shin higgledy@donga.com