On the 1st of this month, a poster for jeonse loan guidance is displayed at a major bank in downtown Seoul. /Courtesy of Yonhap News Agency

The financial authorities are considering including lease loans in the total debt repayment ratio (DSR) regulations to curb the rising trend of housing prices in Seoul.

The Financial Services Commission reported on the expansion of DSR application targets and the establishment of financial sector management goals as a household debt management plan during a briefing held at the Government Sejong Center on the morning of the 19th.

DSR is the value obtained by dividing the annual principal and interest repayment amount of the borrower by their annual income. For banks, DSR cannot exceed 40%. The DSR regulatory ratio for non-banking institutions is 50%.

Policy mortgages such as lease loans and special guarantee mortgages are currently recognized as exceptions in the DSR calculation. This is because tightening these loans classified as 'subsidized loans' could make it difficult for low-income individuals and actual users to secure financing.

However, lease loans have been excessively supplied, reaching around 200 trillion won, by avoiding regulations. As concerns arise that lease loans contribute to rising rental prices, increased gap investment, and a vicious cycle of rising house prices, it appears that the authorities are considering applying the DSR regulations.

Previously, the Financial Services Commission included plans to apply DSR regulations to lease loans in last year's 'major business promotion plan', but they postponed strengthening the regulation on lease loans as the growth rate of household debt began to moderate.

The Financial Services Commission also decided to manage household debt within an 'aggregate target' estimated to be around 3.8%, which aligns with the growth rate of nominal growth, through a 'self-management' system for the financial sector with monthly and quarterly management goals.