The average loan-to-value ratio on mortgages taken out by young South Koreans fell this year even as the average approved loan amount rose about 7%, raising concerns that stricter lending rules and rising home prices are making it harder for younger buyers to finance a home purchase.
Data submitted by the Financial Supervisory Service to Rep. Park Jun-tae of the People Power Party, a member of the National Assembly's National Policy Committee, showed on the 21st that the average LTV on mortgages extended by domestic banks to borrowers aged 19 to 39 was 56.2% in the January-August period, down 2.5 percentage points from 58.7% last year.
LTV measures the size of a loan relative to the appraised value of the home pledged as collateral. A lower average LTV means the approved loan accounted for a smaller share of that value. An official at a commercial bank said a declining LTV ratio suggests young people may not have been able to borrow enough to buy a home, adding that the financial burden on younger buyers appears to be growing.
It is the first annual decline in the average LTV for young borrowers since 2022. The ratio had climbed for three straight years, from 42.7% in 2022 to 53.0% in 2023, 57.9% in 2024 and 58.7% last year, before falling this year. Mortgages for newlyweds moved the other way, with the average LTV rising 1.3 percentage points to 65.1% from 63.8%.
The average approved amount per loan continued to increase. Domestic banks approved 86,536 mortgages worth a combined 22.1 trillion won ($15.2 billion) for young borrowers in the first eight months of this year. That works out to about 255 million won per loan, roughly 7% more than last year's annual average of about 239 million won. The figure has risen for four consecutive years, from about 170 million won in 2022 to 189 million won in 2023, 223 million won in 2024 and 239 million won last year.
Analysts attribute the drop in LTV, despite larger loan approvals, to rising home prices and tighter lending rules. An official in the financial industry said lending restrictions aimed at curbing price gains have been in place throughout the year while home prices kept climbing, and that the combination of policies adopted to stabilize the market appears to have reduced the share of collateral value young people can borrow against.
Market watchers also point to widening income gaps among young adults as a possible factor. Higher earners may have secured relatively large loans, while those with lower incomes either failed to qualify or were approved for only small amounts. As banks tightened lending standards, the argument goes, credit concentrated among high-income young borrowers. Another financial industry official said only those able to borrow did so while others found it harder, noting that people with high salaries borrowed more while low-income borrowers may have been shut out entirely or approved for very small sums.
Larger loans have pushed up principal and interest payments relative to income. The average debt service ratio on mortgages for young borrowers had fallen for three straight years, from 39.7% in 2022 to 37.4% in 2023, 33.4% in 2024 and 31.4% last year, but rose 1.1 percentage points to 32.5% in the January-August period.
Separately, the average LTV on first-time home purchase mortgages fell 6.0 percentage points to 65.8% in the first eight months of this year from 71.8% last year. The average DSR over the same period also declined 2.3 percentage points to 31.8% from 34.1%.