Since November 30th, the Financial Supervisory Service (FSS) has set a regulation to prevent high-income people with an annual income of more than 80 million won from receiving more than 100 million credit loans, and to recollect the loans from those who bought houses in regulated areas* within a year. The government lowered the benchmark interest rate by 0.5%p for the people affected by the COVID-19, but this was exploited to invest in stocks and real estate, leading the FSS to prepare measures to manage household debt, including credit loans.

According to a survey by the FSS, household loan growth rose to 13.2 trillion won last month, from 3 trillion won a year earlier, of which mortgage loans expanded from 4.7 trillion won to 7.2 trillion won. Under the revision, commercial banks will be subject to up to 40% of the Debt Service Ratio (DSR) regulation. In comparison, unique and local banks will be subject to up to 80% of the DSR regulation. This makes it impossible for credit banks to receive credit loans without restrictions based on their credit ratings. In the future, the annual principal and interest of all debts, including mortgage loans and credit loans, should be within 40% of their yearly income. Moreover, each commercial bank will have to lower the portion of risky loans* from the current 15% to 5% and the portion of high-risk loans* from 10% to 3% in the future. The FSS said it will come up with plans such as a reduction in the ratio of mortgage-backed security and total debt repayment in case of possible side effects.

Son Jae-Young (Prof. of Property, Konkuk University) said, "I agree with the purpose of the policy itself, but I think it is unnecessary to block the way for homeless people to buy houses using loans at a time when housing prices have risen a lot. To solve this problem, the Financial Supervisory Service will have to change the current DSR calculation method to add future expected income based on the life cycle or to develop supplementary indicators for borrowers who have difficulty identifying their income."

Regulatory region*:  Area where the rate of increase in housing prices is significantly higher than that of inflation, where speculation is prevalent or is likely to meet certain detailed requirements. 

Debt-to-income ratio*: The annual principal and interest of all loans borrowed by the borrower divided by annual income.

Risk loans*: loans that exceeds more than 70 % DSR

High-risk loans8: loans that exceeds more than 90 % DSR

By Yoo Chan-Ju, Reporter

ychanjoo@pusan.ac.kr