Koreans will face stricter requirements in order to gain access to a government-backed mortgage although the size of funds available for those eligible will be expanded, the financial authorities said Thursday.

The Ministry of Strategy and Finance, the Financial Services Commission and the Ministry of Land, Infrastructure and Transport jointly announced that regulators will expand government-backed mortgages for next year, but will also limit the value of eligible properties and add an upper cap on incomes for better supply.

The authorities will provide a total of 44 trillion won ($38 million) worth of public funds in 2017 for the government’s flagship mortgage programs. They are designed to help young and working-class households to own their own houses at lower borrowing costs, while aiming to boost the country’s real estate market. 

Next year’s mortgage supply has grown slightly from 41 trillion won this year, but the decision was made after the regulator was criticized for a faster-than-expected runout of mortgage supply in October. 

The government currently offers three mortgages: Didimdol Laon for working-class households that have never owned a house, Bogeumjari Loan for middle-class households and Jeokgyeok Daechul known as conforming loan for all households.

“In order to provide support for households that are in real need of government mortgages, the regulator decided to lower the house price ceiling and create a new income threshold,” said Lee Chan-woo, deputy finance minister at a briefing at the Seoul government complex in Gwanghwamun.

For Didimdol Loan, the house price ceiling will be lowered from the current 600 million won to 500 million won. Citizens with 60 million won or less a year can apply for the program as usual.

For the Bogeumjari Loan, the ceiling will be shaved from 900 million won to 600 million won. The authorities also put a cap on annual incomes of eligible borrowers at 70 million won. The total amount of borrowable Bogeumjari Loan will be 300 million won per household.

The FSC analyzed that the Bogeumjari Loan has been widely used by high-income earners since the program has a high ceiling for housing prices and no income limit. According to the financial regulator, about 25 percent of Bogeumjari Loan takers this year earned more than 70 million won per year.

“Even after applying the upper cap on annual incomes, about 80 percent of all households in the nation are eligible for the loans,” said Doh Kyu-sang, director general of the financial policy bureau at the FSC.

Current conditions for the fixed-rate conforming loan will be unchanged next year, but the authorities decided to decrease the percentage of loans subject to rate adjustment.

Under the current system, 50 percent of fixed-rate loans get their rates adjusted every five years. The FSC will cut the portion by 15 percent every year starting in 2017 in order to help borrowers manage their debt burdens. “In the case of rising interest rates, demand for government mortgages can soar in the future,” Doh said. “That is why we are limiting the eligible borrowers.”

By Song Su-hyun (song@heraldcorp.com)