"You Too Are Subject to DSR 40%"... What Inquiries Were Common on the First Day of Changed Loan Regulations (Comprehensive)

Inquiries Flood In: "Will Loan Limits Be Reduced?" Due to Changed Lending Regulations

[Asia Economy Reporters Sunmi Park, Kiho Sung, Seungseop Song] "With the enforcement of the Financial Consumer Protection Act (FCPA), loan procedures have become more complicated, and since the strengthened loan regulations took effect today, we've been overwhelmed with inquiry calls for the past few days." (Loan officer at Bank A, Jung-gu, Seoul)

"The loan regulations keep changing, and the detailed rules related to the new regulations were created on such short notice that we are also struggling to keep up." (Credit officer at Bank B, Jongno-gu, Seoul)

On the first day of the new household debt management measures, which include expanding the application of the Debt Service Ratio (DSR) on a borrower basis, July 1, major commercial bank branches were flooded with calls inquiring about the changed loan regulations from the morning. Most inquiries were about how much the loan limits would be reduced when applying the regulations, whether retroactive application would apply to housing mortgage loans for contracts signed in advance, and so on.

The core of this regulation is applying a 40% DSR to housing mortgage loans exceeding 600 million KRW and unsecured loans exceeding 100 million KRW. Given the ultra-strong regulations, questions poured in not only about loan limit reductions but also about whether DSR would apply when extending unsecured loans and whether additional jeonse (key money deposit) loans would be allowed. There were also many calls asking if deposit-secured loans or card loans would be subject to DSR regulations and whether existing borrowers could take out new unsecured loans.

An employee in charge of credit at Bank C in Mapo-gu said, "Because of the new loan regulations, loan inquiries have been pouring in not only to the bank call center but also to branches and even my personal mobile phone for several days." He added, "Since home purchases are usually planned months in advance, many people had consultations beforehand for housing mortgage loans, but since today is the first day of the new regulations, many people whose contract dates fall after July are asking about the possible loan limits under the changed regulations." A teller at Bank D's Yeouido branch said, "Before coming to work, I received a call on my mobile phone from an existing housing mortgage loan customer. It was an inquiry about an unsecured loan, and I told them that since retroactive application does not apply, the loan amount available would be significantly reduced."

Since the new regulations aim to lend only as much as the borrower can repay, customers worried about reduced loan limits continued to voice their concerns. A representative from Bank E's Gangnam branch explained, "Most of the customers inquiring are facing reduced limits. We inform customers who need additional funds that financing through secondary financial institutions is possible, but many are concerned about the relatively high interest rates."

In fact, savings banks are preparing for loan demand and inquiries shifting from commercial banks. Although most pre-regulation inquiries are concentrated at commercial banks and the atmosphere is still quiet, customers who are blocked by commercial bank loan restrictions may flock to secondary financial institutions in 2 to 3 days. A savings bank branch official said, "When new regulations are implemented, the secondary financial sector is quiet at first, but gradually more people start asking about limits and eligibility. Our headquarters issued internal manuals and conducted training before the implementation," he revealed.

Financial Consumer Protection Act and New Loan Regulations... Increased Work Fatigue for Bankers

With the enforcement of the FCPA increasing bankers' workload, the application of new loan regulations has led to a surge in complaints about work fatigue among bank employees. In particular, while regulations used to change once every 2 to 3 years, new real estate measures and loan regulations now come out almost monthly, making customer service more exhausting.

An employee at a branch said, "The loan limits under the changed system can be calculated by entering data into the computer, but the most burdensome part is dealing with complaints from customers whose loan limits have been reduced." He lamented, "Since housing mortgage loans are often part of long-term plans, if the limits are reduced more than expected, customers tend to blame the bank employees."

Another branch official said, "Every time new regulations come out, the detailed internal rules and required documents change, but official notices arrive just before the enforcement date, so there are many cases where sufficient guidance was not provided to existing clients." He confessed, "In fact, many bank employees only understand the contents after seeing the official notices late."

What Are the Household Debt Management Measures Effective July 1?

Meanwhile, starting today, when taking out a housing mortgage loan on a house worth more than 600 million KRW or an unsecured loan exceeding 100 million KRW in regulated areas such as Seoul, a 40% DSR?meaning the ratio of total financial loan principal and interest repayment to income?will be applied.

From July next year, the DSR regulation will apply when the total loan amount exceeds 200 million KRW, and from July 2023, it will apply when unsecured loans exceed 100 million KRW. Also, the LTV (Loan to Value) preferential margin applied when a non-homeowner takes out a mortgage loan to buy a house will increase by up to 20 percentage points, 10 percentage points more than before.

For non-homeowners, the house price criteria for receiving LTV preferential benefits will be relaxed from 600 million KRW to 900 million KRW (from 500 million KRW to 800 million KRW in regulated areas), and the income criteria will be expanded from a combined couple income of 80 million KRW or less to 90 million KRW or less (for first-time homebuyers, from 90 million KRW to 100 million KRW). Young people and newlyweds can use policy mortgages with a 40-year maturity.

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