If Annual Income and Credit Line Each Are 50 Million Won, Loan Limit Reduced to 178 Million Won Starting July

Expansion of Housing Subject to DSR Regulation Over 600 Million Won... 83.5% Affected
Three-Homeowners with Annual Income of 80 Million Won in Non-Regulated Areas with 600 Million Won Range
Lower Age and Longer Loan Maturity Lead to Greater Increase in Loan Limits

[Asia Economy Reporter Kwangho Lee]The personal Debt Service Ratio (DSR) regulation, which had so far applied only to homes priced over 900 million KRW in speculative and overheated speculation zones, will be expanded from July to include homes priced over 600 million KRW. This will cover 83.5% of apartments in Seoul. Additionally, for credit loans exceeding 10 million KRW, borrowers will be required to undergo repayment ability assessments to ensure that the principal and interest repayment amount does not exceed 40% of their income. As a result, not only mortgage loans but also credit loans and card loans will fall under government regulation, leading to a reduction in household loan limits by tens of millions of KRW or more compared to before. Financial authorities plan to reduce the household loan growth rate to 5-6% this year and to the 4% range by next year through these tightening measures. Given the significant market changes expected, the following Q&A explains the upcoming changes for easier understanding.

-How much will loan limits decrease with the DSR expansion?

▶When executing mortgage loans under the DSR method with an interest rate of 2.5% and a limit of 40%, a borrower with an annual income of 50 million KRW can have a loan limit of 315 million KRW for a 20-year term. Under the same conditions, borrowers with annual incomes of 80 million KRW and 100 million KRW can receive 503 million KRW and 629 million KRW, respectively. If there are other loans from financial institutions, the principal and interest repayment amounts are included, reducing the limit. According to a simulation by a commercial bank, a borrower with an annual income of 50 million KRW who has a 50 million KRW overdraft (credit limit loan) and applies for a mortgage loan on a 600 million KRW apartment in Seoul, a regulated area, could borrow 240 million KRW before July this year, but this amount will be sharply reduced to 178 million KRW from July. The mortgage loan interest rate and installment period (equal principal and interest repayment method) are assumed to be 2.7% per annum and 20 years. Also, the maturity of an existing 50 million KRW credit loan will be shortened from 10 years to 7 years, increasing the credit loan principal and interest repayment from the current 6.5 million KRW to 8.54 million KRW.

-How much will loan limits decrease for owners of three homes or land speculation cases?

▶For a borrower with an annual income of 80 million KRW, no home ownership, a home price of 900 million KRW, and a loan maturity of 30 years, mortgage loans are currently restricted for owners of three homes in speculative and adjusted areas, but in non-regulated areas, they can receive up to 1.71 billion KRW. However, under the borrower-level DSR application, the loan limit will be reduced to only 675 million KRW. Also, under the same conditions, if purchasing land worth 3 billion KRW, the current mortgage loan applies an 80% Loan-to-Value (LTV) ratio in speculative, adjusted, and non-regulated areas, allowing up to 2.4 billion KRW, but going forward, the limit will be drastically reduced to 675 million KRW.

-Since LTV regulation is already in place, is there concern about overlapping regulations?

▶LTV and DSR serve complementary roles. LTV is a regulation based on collateral value aimed at managing the soundness of financial institutions, while DSR is a regulation assessing the borrower's repayment ability aimed at consumer protection. With the expanded application of DSR regulations under this policy, loans will be made within appropriate collateral value and the borrower's repayment capacity, achieving both improved financial institution soundness and prevention of excessive lending to consumers. Through this regulation, side effects such as multi-home investments and reckless credit loans are expected to be systemically blocked naturally.

-How much will loan limits increase when reflecting young people's future income?

▶Since it varies depending on the borrower's salary level, age, and loan conditions, it is difficult to calculate uniformly. It is expected that the lower the age and the longer the loan maturity, the greater the increase in loan limits. For example, for a 24-year-old non-homeowner worker earning 2.5 million KRW monthly, applying a 2.5% annual interest rate, 30-year maturity, DSR 40%, and an expected income growth rate of 75.4%, the loan limit increases from the existing 250 million KRW to a maximum of 348.5 million KRW, a 39.4% increase.

-How will differences in income levels by occupation and age be reflected when calculating the borrower's future income?

▶Since the borrower's future income involves many variables such as occupation, age, and skill level, it is difficult to present a single standard. However, given the limited range of currently available reliable income data, the plan is to apply primarily the available data and, in the future, during the process of establishing voluntary regulations, allow banks to freely adjust and supplement upper and lower limits and ratios of loan increases within reasonable ranges according to their circumstances. Financial authorities intend to guide the financial sector to autonomously utilize reliable statistics or reasonably estimated future income based on sufficient internal data.

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