Kim Byeong-hwan, Chairperson of the Financial Services Commission, noted on the 7th that ahead of the implementation of the third phase of the debt service ratio (DSR) on July 3, an additional charge will be applied differently in the metropolitan area and the provinces. The Financial Services Commission plans to apply a lower additional charge in non-metropolitan areas than in metropolitan areas. This will allow borrowers purchasing homes in non-metropolitan areas to borrow more than those purchasing homes in metropolitan areas.
At the monthly press briefing held that day, Kim noted, “I will announce the third phase of the stress DSR implementation plan in May,” and added, “We need to fine-tune the details, but fundamentally, we have the perspective that there will be differences in (interest rates) between the metropolitan and provincial areas.”
The stress DSR is a system that determines the loan limit by adding the additional charge set by the Financial Services Commission to the loan interest rate of financial institutions. The current DSR system regulates that the annual principal and interest repayment amount of borrowers cannot exceed 40% of their annual income. Accordingly, as the range of additional charges increases, the loan limit decreases, while conversely, as the range of additional charges decreases, the loan limit increases.
Initially, the Financial Services Commission aimed to introduce the third phase of the stress DSR by raising the additional charge uniformly to 1.5 percentage points across all regions to curb household loan growth. However, they faced calls from some political circles and the construction industry to relax regulations specifically in the provinces. The argument is that if money does not circulate in the provinces due to loan regulations, the issue of unsold properties in provincial real estate will worsen. It is interpreted that the Financial Services Commission chose to differentiate the additional charge this time considering issues like provincial real estate.
The scenario for the differentiation of additional charges between regions will be pursued by lowering the increase rate of the additional charge in non-metropolitan areas to below 1.5 percentage points. The criteria for determining the additional charge is the location of the dwelling that serves as collateral for the loan. Even if a borrower’s registered address is in a metropolitan area, they will receive a lower additional charge if they borrow money using collateral located in non-metropolitan areas. Conversely, if a borrower registered in the provinces takes out a loan from a provincial bank but has collateral in the metropolitan area, a higher additional charge will apply.
On that day, Kim reiterated the intention to launch equity-type housing loans. Kim explained, “The equity-type housing loan is something I have proposed as a policy issue,” adding, “It is a policy suggestion on how we can help citizens who have difficulties in financing their home purchases.” He continued, “I believe this policy will be pursued in some way,” stating, “However, the specific measures will be coordinated once the new government comes in.”
Earlier, Kim first raised the necessity of equity-type housing loans at a press briefing in March. An equity-type housing loan is a loan where the Korea Housing Finance Corporation funds part of an individual's home purchase and occupies an equivalent share of equity. The Korea Housing Finance Corporation co-owns the home with the borrower, who must pay a certain usage fee to the corporation. The equity-type housing loan has the advantage of reducing the burden of saving for a significant amount as well as the expense of loan interest. However, there are concerns that it may encourage demand for home purchases and drive up housing prices.