Newsletter
Amendments to the "Regulations Governing the Loans Secured by Real Estate Mortgages Extended by Financial Institutions
In September 2024, the Central Bank announced amendments (“Amendments”) to the "Regulations Governing the Loans Secured by Real Estate Mortgages Extended by Financial Institutions" (“Regulations”).The Amendments impose stricter conditions on financial institutions extending mortgages. The key points of the Amendments are as follows:
1. Lowering the maximum mortgage for private entities to purchase residential property
The maximum mortgage for private entities to purchase residential property has been lowered from 40% to 30% of the lower value between the appraised value and the transaction price of the real property (including land) (Paragraph 2, Article 3 of the Regulations).
2. Imposing verification obligations on financial institutions handling mortgages for individuals seeking loans for purchasing residential property
When handling mortgages for individuals to purchase residential property, financial institutions are required under the Amendments to refer to the “National Property Tax Consolidated Property Inquiry List” to verify whether a borrower owns any real property, in addition to the existing requirement for financial institutions to verify such fact with the Joint Credit Information Center of the Financial Information Service Co., Ltd. (Article 4 of the Regulations).
3. Increasing restrictions on mortgages on residential property
The Amendments explicitly stipulate that individuals who "do not have a mortgage but already own any real property" are also subject to the same restrictions as private entities when obtaining mortgages on residential property. In addition, for individuals who "already have one mortgage," regardless of the location of the mortgaged residential property, the amount of mortgage is subject to Paragraphs 1, Article 3 of the Regulations (i.e., no grace period for loans used to purchase of residential property) and Paragraph 3, Article 3 of the Regulations (i.e., no increase in any credit limit for renovation, working capital, or other purposes). Furthermore, the maximum mortgage permitted has been lowered from 60% to 50% of the lower of the appraised value and the transaction price of the real property (including land) (Article 4 of the Regulations).
4. Reducing the maximum mortgage on unsold housing units
A mortgage on an unsold housing unit refers to a mortgage extended by financial institutions to construction companies that use unsold newly built residential property (including land) as collateral. An unsold newly built residential property (including land) is defined as a property (including land) that is no more than five years old and still maintains the initial property ownership registration (Paragraphs 7 and 10, Article 2 of the Regulations). Under the Amendments, the maximum mortgage on an unsold newly built residential property has been lowered from 40% to 30% of the appraised value (Article 6 of the Regulations).
The Amendments took effect on September 20, 2024. However, for mortgage applications filed on or before September 19, 2024 but not yet disbursed by financial institutions, the Regulations in effect on the date of filing will still apply, provided that the financial institutions have confirmed the filing. Given the significant impact of the Amendments on the mortgage business of financial institutions, it is advisable for those intending to apply for a mortgage to pay close attention to the Amendments and consider the Amendments in their planning.