By Yoon Ja-young
Top policymakers are leaning toward easing rules on mortgages, taking a cue from finance minister nominee Choi Kyung-hwan.
However, that is causing concern about whether they are fully focusing on their main task of guarding the soundness of the financial sector.
Financial Services Commission Chairman Shin Je-yoon hinted that the financial watchdog would consider easing the debt-to-income ratio (DTI) and loan-to-value ratio (LTV) regulations.
"As far as it doesn't hurt the financial stability, we will consult on the issue with related ministries to see if there are measures to support the real economy with the financial tools," Shin said at the National Assembly, Thursday.
Financial Supervisory Service Governor Choi Soo-hyun also said that the regulator would seek rational improvement in DTI and LTV.
"These regulations have contributed to suppressing household debt and maintaining the soundness of the financial system. However, some have pointed out that it is too complicated in detail and is too rigid, especially in times of the real estate market recession."
The remark echoes that of the nominee for deputy prime minister and finance minister.
Choi has suggested that the regulations on household loans should be eased, comparing current regulations to "summer clothes in the midwinter." Winter here refers to the depressed real estate market.
These regulations were adopted during the housing market bubble. DTI restricts the amount of housing loans one can get in accordance with his or her annual income, while LTV considers the value of the house.
However, the remarks by the financial regulators are making the market wonder what made them suddenly change their stance on the issue. Shin had said in an earlier meeting with the media that the household debt has considerable effect on the economy. "LTV and DTI are financial policy tools for the soundness of the bank and household debt, not real estate policies," he said.
Housing loans to be eased
It seems that the major players in the LTV and DTI deregulation proposals are reaching a consensus, with not only the finance minister and the financial regulators but also Land, Infrastructure and Transport Minister Suh Seoung-hwan supporting the easing of them.
The market expects that the government is likely to ease regulation on young workers and retirees. It notes that senior citizens, who have assets but little income, have the capability of paying back loans. Hence it isn't fair to consider only their income in determining whether to provide loans or not. DTI can be eased on young workers as well, as their ability to pay back loans will increase with their career building up.
However, there still lingers concern over the household debt. Critics wonder whether it is right for the government to induce people to buy houses on debt when household debt has already reached 1 quadrillion won.
"With the household debt amounting to 1 quadrillion won, easing of LTV and DTI, which are the minimum financial buffer, can lead to problems in the financial sector. It can lead to an undesirable economic situation," announced the Citizens' Coalition for Economic Justice in a statement.
The Korea Development Institute (KDI) also said in a report that the rise of the LTV ratio to 60 percent from 50 percent will increase household debt by 29 trillion won, while it would boost housing prices by only 0.7 percent.
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Shin Je-yoon |
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Choi Soo-hyun |
However, that is causing concern about whether they are fully focusing on their main task of guarding the soundness of the financial sector.
Financial Services Commission Chairman Shin Je-yoon hinted that the financial watchdog would consider easing the debt-to-income ratio (DTI) and loan-to-value ratio (LTV) regulations.
"As far as it doesn't hurt the financial stability, we will consult on the issue with related ministries to see if there are measures to support the real economy with the financial tools," Shin said at the National Assembly, Thursday.
Financial Supervisory Service Governor Choi Soo-hyun also said that the regulator would seek rational improvement in DTI and LTV.
"These regulations have contributed to suppressing household debt and maintaining the soundness of the financial system. However, some have pointed out that it is too complicated in detail and is too rigid, especially in times of the real estate market recession."
The remark echoes that of the nominee for deputy prime minister and finance minister.
Choi has suggested that the regulations on household loans should be eased, comparing current regulations to "summer clothes in the midwinter." Winter here refers to the depressed real estate market.
These regulations were adopted during the housing market bubble. DTI restricts the amount of housing loans one can get in accordance with his or her annual income, while LTV considers the value of the house.
However, the remarks by the financial regulators are making the market wonder what made them suddenly change their stance on the issue. Shin had said in an earlier meeting with the media that the household debt has considerable effect on the economy. "LTV and DTI are financial policy tools for the soundness of the bank and household debt, not real estate policies," he said.
Housing loans to be eased
It seems that the major players in the LTV and DTI deregulation proposals are reaching a consensus, with not only the finance minister and the financial regulators but also Land, Infrastructure and Transport Minister Suh Seoung-hwan supporting the easing of them.
The market expects that the government is likely to ease regulation on young workers and retirees. It notes that senior citizens, who have assets but little income, have the capability of paying back loans. Hence it isn't fair to consider only their income in determining whether to provide loans or not. DTI can be eased on young workers as well, as their ability to pay back loans will increase with their career building up.
However, there still lingers concern over the household debt. Critics wonder whether it is right for the government to induce people to buy houses on debt when household debt has already reached 1 quadrillion won.
"With the household debt amounting to 1 quadrillion won, easing of LTV and DTI, which are the minimum financial buffer, can lead to problems in the financial sector. It can lead to an undesirable economic situation," announced the Citizens' Coalition for Economic Justice in a statement.
The Korea Development Institute (KDI) also said in a report that the rise of the LTV ratio to 60 percent from 50 percent will increase household debt by 29 trillion won, while it would boost housing prices by only 0.7 percent.
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