Hi guys! It’s Tony. I am back with an article that might interest you guys! Have you guys ever heard of the term, ‘LTV’? Hum, it seems that most of you are not familiar with this term. So, before we get into the topic, I will briefly explain what LTV is. LTV stands for Loan-to-Value Ratio, expressing the amount of mortgage loan as a percentage of the total appraised value of a real estate property. For example, if a borrower borrows $20 to purchase a house worth of $100, the LTV ratio is $20/$100 which is 20%. Is it still hard to understand? Then I will explain it more thoroughly. When giving mortgage loans, banks use LTV ratio as the maximum credit line in regard to the collateral value of the real estate property.
Since 2010, the Korean financial supervisory institutions have been making lots of policies related to LTV. But as time has passed by, there is a saying that relieving the degree of LTV regulation is urgent for the purpose of easing the financial difficulties faced by the low and middle income households. Some argue that LTV regulations let the mortgage market in a total stagnation.
Other people are worried about that, if the government relieves LTV regulations, the price of the houses will go up too high. However, there is no need to worry about such a problem, since LTV regulations are not the fundamental causes of speculation in a real estate market! The extent of regulations may vary according to situations, but the LTV regulation is essential. First reason would be to promote household properties’ asset qualities. Second reason is to shut out housing mortgage loans’ insufficient hazards beforehand and last one is to restrain asset bubbles from speculative investment in real estates!
Korea, just like any other countries in the world, is also pushing LTV-related policies to better support the lives of middle and low income earners. LTV indeed is a must-needed policy, and financial authorities need to carefully consider the intensity of the LTV regulation.