"Household Debt Slowdown... 50-Year Mortgage Loan Limit Effect Starting October"

Authorities Hold 'Household Debt Status Review Meeting'

In September, household debt decreased by 2.4 trillion won compared to the previous month, indicating a slowdown in the growth trend. Authorities expect the effects of the restriction on 50-year maturity mortgage loans, identified as a major cause of the rapid increase in household debt, to take full effect starting this month.

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where the financial authorities decided to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. The financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare loan interest rates across the financial sector at a glance and switch loans easily. Photo by Yoon Dong-ju doso7@

On the 12th, the Financial Services Commission announced that it held a ‘Household Debt Status Review Meeting’ chaired by Secretary-General Lee Se-hoon, with related agencies including the Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, Bank of Korea, Financial Supervisory Service, Korea Housing Finance Corporation, Korea Federation of Banks, and Korea Institute of Finance.

According to the authorities, the increase in household debt in September (2.4 trillion won) significantly decreased compared to July and August (5 to 6 trillion won). In the banking sector, influenced by policy authorities’ household debt management measures, the growth rates of individual mortgage loans (4.1 trillion won in August → 3.6 trillion won in September) and policy mortgages (2.7 trillion won in August → 2.1 trillion won in September) both slowed considerably compared to the previous month. Additionally, the decrease in other loans expanded (from an 80 billion won decrease to a 1.3 trillion won decrease).

In particular, 50-year maturity mortgage loans shrank in new loan amounts (4.8 trillion won in August → 4.2 trillion won in September) due to measures such as improved maturity calculation for the Debt Service Ratio (DSR) and strengthened borrower repayment ability assessments.

The fact that 50-year maturity mortgage loans decreased by only 600 billion won is explained by the authorities as a result of banks implementing their own strengthened management measures in August, but loans applied for in August being processed in September. Authorities expect the effects of these strengthened management measures to become fully apparent after October.

However, participants at the meeting noted that the decrease in September was also influenced by temporary and seasonal factors such as credit loan repayments from Chuseok bonuses and quarterly write-offs of non-performing loans by specialized credit finance companies. Therefore, they emphasized the need to monitor future trends to determine whether the household debt growth trend will stabilize.

To this end, financial authorities plan to promptly implement household debt management measures, including the previously announced introduction of a stress DSR for variable interest rates. They will also expedite individual bank household debt management inspections through the Financial Supervisory Service and, based on the inspection results, identify and pursue additional institutional improvements if necessary.

An official from the authorities stated, “Since household debt management must be consistently conducted from a long-term perspective, we ask banks and others to continuously focus on establishing a ‘loan practice within repayment ability.’” The official added, “Although the increase in household loans slowed somewhat in September, seasonal factors such as Chuseok bonuses and quarterly non-performing loan write-offs were involved. We will not let our guard down and will continue policy efforts to manage the growth of household debt.”

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