[Seungseop Song's Financial Light] 'DSR 40%'... How Exactly Is It Changing?

Expanding DSR Regulation Scope, 'Per Borrower' Transition is Key
Applies to Houses Over 600 Million KRW in All Regulated Areas
Credit Loans Over 100 Million KRW Also Included Regardless of Income

Finance is difficult. It is filled with confusing terms and complicated backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Therefore, Asia Economy selects one financial term each week and explains it in very simple language. Even if you know nothing about finance, you can immediately understand these ‘light’ stories that will turn on the bright ‘light’ of finance for you.

[Asia Economy Reporter Song Seungseop] From the 1st of this month, loan regulations have become stricter. As the loan market overheated, measures were implemented to curb the growth. Here is an easy-to-understand explanation of how loans are changing.

The core of the measures is the ‘Debt Service Ratio (DSR).’ DSR evaluates the borrower’s ability to repay. It expresses the proportion of money spent on repaying principal and interest (debt service) out of the annual income. For example, if Mr. A has an annual income of 100 million won and must repay 50 million won in principal and interest, the DSR is 50%. Loans include mortgage loans, student loans, overdraft loans, car installments, card loans, and more.

Now, suppose the financial authorities set the DSR at 80%. If Mr. B has an annual income of 100 million won and no existing loans, he can borrow money as long as the annual debt service does not exceed 80 million won. But what if it suddenly drops to 40%? The amount he can borrow would be cut in half.

Domestically, the DSR was set at 40%. However, the DSR regulation was only applied to some individuals. It applied when purchasing apartments worth more than 900 million won (market price) in speculative or overheated speculation zones, or when high-income earners with annual income over 80 million won took out credit loans exceeding 100 million won. Also, the DSR regulation was applied ‘per bank.’ Banks flexibly adjusted the DSR limits according to their own standards. For example, applying a 50% DSR to Mr. C and 30% to Mr. D was acceptable as long as the average was maintained at 40%.

From this month, things have changed. The scope of regulation has expanded. Previously, it only applied when buying homes over 600 million won in all regulated areas (speculative zones, overheated speculation zones, and adjustment target areas). Now, if you buy a home over 600 million won in any regulated area, the DSR regulation applies. Also, regardless of income, if you use credit loans exceeding 100 million won, you will be subject to the 40% regulation. The DSR regulation, which was previously applied ‘per bank,’ has changed to ‘per individual.’ If you fall under these conditions, you cannot get a loan exceeding a 40% DSR in any way.

The Financial Services Commission plans to gradually expand the scope of DSR application. The DSR policy implemented this month is only the first stage. From July next year, if you try to borrow more than 200 million won combining mortgage and credit loans, the 40% DSR will apply. From July 2023, if the total loan amount exceeds 100 million won, you will be subject to the individual DSR 40% regulation.

However, there are exceptions. When calculating total loan amounts, jeonse deposit loans, savings and installment savings secured loans, and insurance contract loans are excluded. Government-provided loans like the Sunshine Loan and small loans under 3 million won are also exceptions. For young people, since low income may cause disadvantages under the DSR regulation, future income is additionally reflected in the calculation.

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