Non-Capital Region Mortgage Loan Limits Decrease by 36 Million KRW
August Bank Household Loans Reach Highest in 3 Years and 1 Month
As a measure to curb the rapid increase in household loans, the second phase of the stress Debt Service Ratio (DSR) has been implemented starting this month. Borrowers with an annual income at the household average level (about 60 million KRW) will see their mortgage loan limits for housing in the metropolitan area reduced by up to 55 million KRW at banks.
According to financial authorities on the 1st, from this day forward, the second phase of the stress DSR, which applies higher additional interest rates to loans from banks and secondary financial institutions, has been enforced. The second phase of the stress DSR is a regulation that adds an additional interest rate of 0.75 percentage points to bank mortgage loans, credit loans, and secondary financial institution mortgage loan interest rates respectively. Accordingly, under the second phase regulation, an additional interest rate of 1.2 percentage points will be applied to metropolitan area mortgage loans at banks.
According to simulations by the financial authorities, a metropolitan area borrower with an annual income of 60 million KRW who takes out a 30-year variable-rate mortgage loan from a bank (assuming a loan interest rate of 4% per annum) will have a loan limit of 364 million KRW. This is about 55 million KRW less than before the regulation was implemented (419 million KRW). Compared to the first phase regulation (400 million KRW), it decreased by 36 million KRW.
Under the same conditions, the loan limit for non-metropolitan area mortgage loans is 383 million KRW, which is 36 million KRW less than before the regulation and 17 million KRW less compared to the first phase regulation.
The reduction rate in loan limits is estimated to be 4% for metropolitan areas and 3% for non-metropolitan areas when taking out a principal and interest fixed-rate mortgage loan with a 5-year term. For mixed-type loans (5-year fixed + variable interest rate), the limits are expected to shrink by 8% and 5% respectively, and for variable interest rate loans, by 13% and 8%. According to Statistics Korea, the recent annual average income calculated based on the monthly average income per household (including households with one or more persons and agricultural/fishery households) is 60.42 million KRW.
Ahead of the recent regulation enforcement, there was a surge in last-minute demand for mortgage loans in the banking sector. As of the 29th of last month, the outstanding balance of mortgage loans (including jeonse deposit loans) at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 567.0735 trillion KRW, an increase of 7.3234 trillion KRW compared to the end of July (559.7501 trillion KRW). Considering the increase in mortgage loans on the 30th and 31st, it is highly likely that the monthly increase in mortgage loans at the five major banks exceeded 8 trillion KRW last month. As of the 29th of last month, total household loans in the banking sector increased by 8 trillion KRW compared to July. This is the largest increase in 3 years and 1 month since July 2021 (9.6 trillion KRW).
The government plans to implement additional regulations, such as expanding the scope of DSR application to jeonse loans or policy mortgages after October, if the rapid increase in household debt does not stop even after the new loan regulations are enforced.
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