South Korea to ease mortgage rule

South Korea will ease a rule on mortgage lending to stimulate the real-estate market and boost consumption as faltering global demand hurts the export-reliant economy, an adviser to President Lee Myung Bak said. “We have seen that there are many irrational aspects to the debt-to-income ratio limit” banks apply to residential mortgage borrowers, Kim Dae Ki told reporters today in Seoul. “While we will maintain the basic framework of the regulation, we concluded that certain irrational parts of the rule should be eased,” he said, without elaborating. South Korea’s central bank unexpectedly cut its benchmark interest rate on July 12 for the first time in more than three years as policy makers stepped up measures to counter the impact of Europe’s debt crisis, a Chinese slowdown and muted US job creation. Growth in Asia’s fourth-largest economy may have slowed to 0.5 per cent in the second quarter from the previous three months, according to the median estimate in a Bloomberg survey ahead of a report due July 26. “We expect Korea’s export-oriented economy to continue to struggle amid tougher global economic conditions,” economists led by Mark Williams and Andrew Kenningham at London-based Capital Economics Ltd. wrote in a note dated July 23. “As a result, the Bank of Korea’s policy rate cut this month is likely to be followed up with more loosening soon,” they wrote. Kim spoke to reporters a day after Lee convened a special meeting to discuss and review policies for the second half of the year. Attendees included the prime minister, ministers responsible for portfolios including the economy, labour, welfare and land, the central bank governor, business leaders and economists. Prices Stall Detailed measures and actions will be discussed tomorrow at an inter-ministerial meeting led by Vice Finance Minister Shin Je Yoon, Kim said. Home prices in Seoul and surrounding areas have stalled after a 66 per cent jump in the decade to February 2008 raised household debt to record levels and triggered government measures to cool the market. Residential property transactions in greater Seoul fell 38 per cent from a year earlier in the January-April period, according to data from the Ministry of Land, Transport and Maritime Affairs. Home prices nationwide have dropped 0.7 per cent this year, according to an index compiled by Kookmin Bank, the nation’s largest lender. When housing prices fall, banks tend to seek faster repayment of loans or increase interest rates, Kim said. “We don’t want to further raise the burden for mortgage holders as a result of falling real-estate prices,” he said. Among measures being considered are exemptions from some deposit-to-income ratio regulations for wealthy retirees who have real-estate assets, Kim said. The Bank of Korea on July 13 reduced its 2012 forecast for economic expansion to 3 per cent from a 3.5 per cent prediction in April, two weeks after the Ministry of Knowledge Economy cut its estimate for export growth to 3.5 per cent from a January projection of 6.7 per cent.