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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.
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