Starting in July, the three-phase stress total debt repayment ratio (DSR) regulation will be implemented. With the implementation of the three-phase stress DSR, the loan limit will decrease, and for borrowers with an income of 100 million won, the limit on mortgage loans will decrease by approximately 18 million to 33 million won compared to now. However, those borrowing against the collateral of dwellings in rural areas can borrow money at the current limit until the end of this year.
On the 20th, the Financial Services Commission held a household debt review meeting and announced this plan. The meeting was chaired by Financial Services Commission Secretary-General Kwon Dae-young and attended by officials from the Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, Bank of Korea, Financial Supervisory Service, and the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup).
The Financial Services Commission announced that, as scheduled, the three-phase stress DSR would be implemented from July 1 this year. The stress rate was set at 1.50%. However, the stress rate applicable to mortgage loans in non-capital areas (excluding Seoul, Gyeonggi, and Incheon) will be temporarily maintained at the current rate of 0.75% until December 31 of this year. This decision reflects the intention not to reduce loan supply in light of worsening unsold properties in rural areas. The level of the stress rate for collateralized loans in rural areas will be determined again at the end of this year. Additionally, the application ratio of the stress rate for mixed-type and periodic-type mortgage loans will be raised from 10–60% to 20–80%.
The types of loans subject to the stress rate will also increase. Previously, only mortgage loans and credit loans from banks and second financial sector mortgage loans were subject to regulation. From July, all mortgage loans, credit loans, and other loans from both banks and the second financial sector will be subject to the stress rate. If the balance of credit loans is 100 million won or less, the stress rate will not be applied.
With the strengthening of the stress DSR regulation, the loan limits for borrowers will be reduced. This is because a virtual interest rate is added to the DSR regulation, which determines the loan limit relative to the borrower's income. If a borrower with an income of 100 million won takes out a mortgage loan for 30 years at an interest rate of 4.2%, the limit based on variable interest products will decrease from 590 million won to 570 million won, a reduction of about 3%. If choosing a five-year mixed product, the loan limit will decrease from 630 million won to 590 million won, approximately a 5% reduction.
Meanwhile, ahead of the implementation of the three-phase stress DSR, a 'last train' phenomenon in household lending is occurring. As of the end of last month, the total household loan balance across the financial sector increased by 5.3 trillion won compared to the end of March. This marks the first time since November of last year that household loans have increased by more than 5 trillion won in five months. Analysts interpret this as a result of a surge in demand to borrow money ahead of the reduction in loan limits, alongside an increase in housing transaction volumes nationwide since February.
Secretary-General Kwon noted, "Considering the possibility of a loan concentration phenomenon before the July implementation of the three-phase stress DSR, all financial sectors should ensure thorough management of household debt." He also stated, "The financial authorities will monitor the adherence of financial institutions to management targets due to concerns over the increase in household loans in May."