Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
FSC to loosen household debt rules for first-time home buyers
A branch of Hana Bank located in central Seoul / Newsis
By Anna J. Park
Top financial regulator to take flexible approach to loans
By Anna J. Park
The country's financial authority will loosen household loan regulations for first-time home buyers, while strengthening income-based loan restrains for most debtors. The two-pronged approach aims to stably manage the country's growing household debt level, considering each debtor's unique condition.
According to the Financial Services Commission's (FSC) announcement on Thursday, the government will implement the income-based debt restraint from July, aiming to prevent excessive debt compared to each debtor's income.
Under the government's new debt service ratio (DSR) plan, which refers to the ratio of a person's total debt compared to household income, everyone who borrowed more than 100 million won ($77,000) can take out additional loans only within the limit of their DSR.
However, the government is allowing a variety of exceptions to the DSR rule.
For instance, those who purchase a home for the first time in their lives would be allowed a loan-to-value (LTV) ratio of up to 80 percent, meaning they could borrow up to 80 percent of a house's market value, regardless of the residence's location, price and debtors' DSR limit.
The upper limit of the total loan is also being increased to 600 million won from the current 400 million won. Also, 50-year-long mortgage loans will be introduced to spread out loan burdens throughout a person's life time.
Also, when calculating each debtor's DSR, the young generation will be given extra considerations, given their future growth in income.
The upper limit for credit loans will also be loosened to lessen the burden on debtors when the key interest rate is increasing.
“The series of measures announced this week aim to normalize market functions where debtors and lenders could make reasonable and responsible decisions on their own, by removing institutional restraints on loans,” the FSC said.
The top regulator urged financial institutions to conduct thorough loan evaluations to safely maintain their risk management, while asking debtors to make reasonable decisions when borrowing money to buy homes.