South Korea will tighten its rules on loans for home purchases amid growing concerns that rising household debts could emerge as a drag on the nation's economic recovery, the government said Tuesday.

The plan, announced jointly by the finance, public administration and land and construction ministries, however, calls for the government to lower acquisition tax rates for home purchases in a bid to bolster frozen transactions in the property market.

   Under the plan, the government decided to roll back eased rules on the debt-to-income (DTI) ratio that it introduced to help people secure necessary funds to purchase a house.

   The DTI rate serves as a major tool to control housing loans by tying the maximum amount of money that home buyers can borrow to their income levels. The ceiling is 40-60 percent in Seoul and the surrounding Gyeonggi Province, the nation's most populous region.

In its measures unveiled last August, the government temporarily lifted the ceiling by the end of March on those who want to buy a new house valued less than 900 million won (US$800,000). Those subject to the eased rules should not have more than one house.

   Market watchers, however, have been predicting that the government will renew the eased rules amid the country's still sluggish home transactions. Some still worried that such exemption might aggravate the fast-growing household debt problem.

   Meanwhile, in a way to bolster the frozen transactions, the government said that it will lower acquisition tax rates by half for home purchases from April until the end of this year.

   Acquisition taxes for a home valued at more than 900 million won will be reduced from the current 4 percent to 2 percent, while the rates for a house valued below the level will be cut to 2 percent to 1 percent, according to the government.

(Yonhap News)