As housing prices in Seoul have recently surged sharply, financial authorities are once again reviewing the option of expanding the application of the Debt Service Ratio (DSR) regulation to include jeonse loans.
On June 19, during a policy briefing to the National Planning Committee at the Government Complex Sejong, the Financial Services Commission announced that it would manage household debt by expanding the scope of DSR application and setting management targets for the financial sector. The commission also stated that it would consider applying DSR to jeonse loans and policy mortgages as part of its debt management measures.
The DSR is a lending regulation that limits the ratio of a borrower's annual debt repayments?including principal and interest on all loans?to no more than 40% of their annual income (for banks). Until now, jeonse loans and policy mortgages have been exempt from DSR requirements to support housing stability for low- and middle-income households.
However, critics have pointed out that excluding jeonse loans from regulation has led to an excessive supply of loans totaling around 200 trillion won, which has in turn fueled a vicious cycle of rising jeonse prices, increased gap investments, and escalating housing prices.
The Financial Services Commission also reported plans to manage household debt by setting a 'total volume target'?keeping the growth rate within the estimated range of the nominal economic growth rate, which is 3.8%?and by implementing a 'self-management system' for the financial sector, with monthly and quarterly management targets. The measures also include differentiating regulatory frameworks between the Seoul metropolitan area and other regions, such as granting additional lending limits for increases in regional mortgage loans or deferring the application of the three-stage stress DSR.
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