[Song Seungseop's Financial Light] Why DSR by Borrower is Strong... How Much Will My Loan Decrease?

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[Asia Economy Reporter Song Seung-seop] The Financial Services Commission has announced measures to manage the rapidly increasing household debt. The borrower-based DSR system has been officially announced. So, how exactly will the loan system change? How much can you borrow? We break down the complex and difficult household debt measures into easy-to-understand terms.

Korea’s loan regulations are mainly composed of the Debt Service Ratio (DSR) and the Loan-to-Value ratio (LTV).

First, DSR is an indicator that assesses the borrower’s repayment ability. It uses income and principal and interest payments. For example, suppose the government allows a DSR limit of up to 80%. A person with an annual salary of 100 million won can borrow up to 80 million won in total principal and interest payments across all loans.

On the other hand, LTV is an indicator used when borrowing money with a house as collateral. It determines what percentage of the house’s value will be recognized. If the LTV is 80%, you can borrow up to 80 million won by pledging a house valued at 100 million won as collateral.

The card the Financial Services Commission has played is to strengthen DSR regulations. They are limiting DSR to 40% per borrower. But what does it mean to apply it ‘per borrower’?

Until now, DSR has been applied per bank. Currently, it was only necessary to keep the ‘average’ DSR at 40%. For example, if a bank applied a DSR of 60% to a high-income person A, it was acceptable. As long as the average was 40%, such as applying a 20% DSR to a low-income person B, it was fine.

However, the Financial Services Commission has stipulated that no borrower, that is, anyone taking out a loan, can exceed a 40% DSR. Whether it is high-income person A or low-income person B, no one can borrow with a DSR exceeding 40%. The borrower-based DSR application will be implemented gradually and is scheduled for full enforcement in 2023.

Effect According to Weekly DSR by Case
[Photo by Financial Services Commission]

This will have the effect of reducing loans. Let’s assume a person with an annual income of 80 million won buys a 900 million won house with a 30-year term. Currently, actual demanders can borrow 360 million won in speculative areas and 630 million won in non-regulated areas. If they buy three houses, they can borrow 1.71 billion won in non-regulated areas. But if DSR is applied per borrower, everyone can only borrow up to 675 million won.

From July, the amount of loans available may decrease immediately. Currently, borrower-based DSR applies only to houses exceeding 900 million won in speculative and speculative overheating zones. But from July, it will include adjusted target areas and expand to houses exceeding 600 million won in market price. For unsecured loans, DSR 40% was applied only when the annual income exceeded 80 million won and the loan exceeded 100 million won, but from July, anyone requesting unsecured loans over 100 million won will be subject to the 40% regulation.

However, young people and newlyweds should watch for the measures to be announced next month. Their income is insufficient, so under the DSR 40% regulation, it is difficult to get loans for home purchases. Accordingly, the Financial Services Commission plans to introduce supplementary measures. The financial authorities intend to increase loan limits by reflecting a kind of ‘future income.’

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