Financial Services Commission to Announce 'Household Debt Regulation Strengthening Measures' on 29th... Easing Measures Scheduled for Next Month

Eun Sung-soo, Chairman of the Financial Services Commission, and Koo Yoon-chul, Director of the Office for Government Policy Coordination, are attending the Cabinet meeting held at the Government Seoul Office in Jongno-gu, Seoul on the 27th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kwangho Lee] The government will announce the "Household Debt Management Plan," which includes strengthening the Debt Service Ratio (DSR), on the 29th. However, measures to ease loans for actual demanders such as young people and the homeless will be announced separately next month.

According to political circles and financial authorities on the 27th, the ruling party and the government agreed to separate the household debt management plan into regulatory tightening measures and regulatory easing measures for announcement.

A government official said, "We judged that the regulatory tightening measures are already largely completed, so we decided to disclose them first."

The main point of the regulatory tightening measures is to reduce the increase rate of household debt, which exceeds 8%, to the 4% range. Measures to prevent the Korea Land and Housing Corporation (LH) scandal are also included in the regulatory tightening measures.

First, the DSR 40%, which is applied at the bank level, will be converted to apply on a borrower-by-borrower basis. The DSR is the ratio of the principal and interest of all household loans to annual income, a system designed to allow borrowing according to one's earnings.

Until now, banks only had to maintain an average DSR of 40%, so some borrowers exceeded the DSR 40% limit while increasing their loan limits.

A Financial Services Commission official explained, "The reason for introducing the DSR was to thoroughly assess the borrower's repayment ability, so it was decided to apply it on a borrower-by-borrower basis. Changing the DSR application target to individual borrowers can limit the increase in household debt."

In response to the DSR strengthening, for young people who may be disadvantaged, future income will be reflected in their annual income. The Financial Services Commission plans to subdivide the statistics on average income growth by industry used to estimate future income.

The Loan-to-Value (LTV) regulation on non-housing collateral loans, stemming from suspicions of land speculation by some LH employees, will be tightened from a maximum of 70% to 40-50%. Additionally, farmers who lose loan benefits due to regulatory tightening will be guided to business loans instead of household loans.

The regulatory easing measures require further discussion between the ruling party and the government and will be announced next month. This is because coordination is needed on the extent to which demands for easing loans for actual demanders, raised around the April 7 by-elections, will be reflected. The ruling party and government are considering expanding the range of housing actual demanders who receive a 10 percentage point LTV preferential benefit.

Meanwhile, on the same day, the Democratic Party, which is reviewing various measures to soothe public sentiment on real estate after the April 7 by-elections, held its first meeting of the party's "Real Estate Special Committee."

It is reported that the meeting comprehensively discussed current issues related to housing welfare, such as housing supply, housing finance, and housing taxation.

Yoo Dong-su, the committee's secretary, said after the meeting, "Measures to ease LTV and Debt-to-Income ratio (DTI) for homeless actual demanders were discussed," adding, "It is likely that these measures will be promoted after further discussions."

He also added, "Since June 1 is the date for determining official real estate prices, we plan to finalize the party's position as soon as possible before then and proceed with related legislation to reduce property taxes for low-income people."

This content was produced with the assistance of AI translation services.