Additional Measures for Household Debt to Be Announced Soon... 'Jeonse Loans and DSR Strengthening' Expected

Financial Authorities Deem Tightening Loans for Actual Borrowers Unavoidable
Full-Scale Household Debt Battle Likely to Continue Beyond Next Year

[Asia Economy Reporter Kim Jin-ho] The 'additional household debt measures' are expected to be announced as early as this week. Considering the severity of the rapidly increasing household debt, stronger regulations than ever before are anticipated. Financial authorities have repeatedly stated their intention to mobilize all available means to curb household debt. Therefore, the additional measures are expected to include not only the strengthening of the Debt Service Ratio (DSR) regulations but also measures on jeonse and group loans, which had been under careful consideration to avoid harming genuine borrowers.

According to the financial sector on the 11th, the Financial Services Commission is expected to announce the 'additional household debt measures' as early as this week or by next week at the latest. Financial Services Commission Chairman Ko Seung-beom stated at last week's National Assembly audit, "We plan to announce (the additional household debt measures) by mid-October," adding, "Loans for genuine borrowers should also be possible within their repayment capacity."

Regulation of Genuine Borrower Loans Including Jeonse Loans Seen as Inevitable

The financial sector interprets Chairman Ko's remarks as indicating that genuine borrower loans, including jeonse loans, will be included in the additional regulations. While strong regulations had not been applied to genuine borrower loans so far, the recent surge in household debt has been attributed to jeonse loans, making it clear that authorities will no longer overlook this issue.

In fact, jeonse loans from the five major commercial banks surged by 14.02%, from 105.2127 trillion won at the end of last year to 119.967 trillion won as of the end of August. This increase is about 3.5 times the growth rate of mortgage loans (4.14%) during the same period.

The expected regulation on jeonse loans includes limiting the loan amount for those renewing existing contracts to within the increase in the deposit amount. Until now, it was possible to borrow up to 80% of the total deposit amount for jeonse loans, but going forward, loans will only be available for the increased portion.

Additionally, including jeonse loans in the DSR calculation is also being discussed. Currently, jeonse loans are excluded from DSR calculations, but applying this would reduce the loan limits.

Early Expansion of DSR Regulations Expected

The early implementation of the DSR, the ultimate loan regulation, is also anticipated. Initially, the Financial Services Commission planned to introduce the 40% DSR regulation in three phases. The 40% DSR limits the repayment of principal and interest to within 40% of annual income.

Currently, the DSR regulation is preemptively applied to purchases of houses over 600 million won in regulated areas, mortgage loans, and credit loans exceeding 100 million won. Subsequently, from July next year (phase 2) and July 2023 (phase 3), the scope will expand to total loan amounts exceeding 200 million won and 100 million won, respectively.

The government is pushing for early implementation of the DSR because household debt has shown no signs of slowing despite the phase 1 application of the DSR. In fact, after July, mortgage loans and jeonse loans from the five major commercial banks increased by about 12 trillion won. Therefore, financial authorities are prepared to take 'ultra-strong measures' to curb household loans, even if it means facing criticism for ignoring the difficulties of genuine borrowers planning to take out loans immediately.

In particular, there is also discussion about reducing the proportion of high DSR loans allowed by each financial company. Lowering the allowed ratio of high DSR loans would effectively block additional loans to multiple debtors and high-value debtors who have borrowed from several financial institutions.

The Full-Scale Battle Against Household Debt Expected to Continue for the Time Being

Meanwhile, the government's full-scale battle against household debt is expected to continue beyond next year. The government’s firm stance is to extend the timeline for managing the total household debt volume beyond next year and to implement strong measures continuously and step-by-step until the effects of the policies become apparent.

The Financial Services Commission has set this year's household loan growth target at the 6% range. Next year, it plans to lower it to the pre-COVID-19 level of around 4%, and maintain this target beyond next year. Even if the loan shortage situation temporarily eases from this year to early next year, it is inevitable that the current situation will quickly recur.

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