[News Today] STRICTER MORTGAGES IN CAPITAL AREA

[LEAD]
In an effort to curb the surge in household loans, the government has tightened lending rules in the metropolitan areas more than in other regions. Starting next month, metropolitan borrowers will face significantly reduced bank lending limits.

[REPORT]
The government's new loan regulation is essentially reducing the mortgage limit for homes in the capital region lower than for those in other areas.

The way to reduce the lending limit is to raise the stress interest rate applied to new toughened loan regulations.

The stress interest rate is an additional rate based on the possibility that future interest rates would increase. The higher the stress interest rate, the lower the mortgage limit.

The government planned to raise the stress interest rate applied to bank mortgages by 0.75 percentage points when the second phase of the stress-based debt service ratio, or DSR, takes effect on September 1st.

But it decided that, in the capital area, a 1.2 percentage point increase will be applied to tighten loan limits further.

Kim Byung-hwan/ Chair, Financial Services Commission
With household debt rising this year, banks and the government must work together to control the situation preemptively.

If a person with an annual income of 50 million won, or 37,600 U.S. dollars, takes out a 30-year loan at a 4.5% interest, that person would have been eligible for a loan of 315 million won, or 237,000 dollars.

But, starting next month, a person with the same conditions would be subject to a loan limit of 287 million won, or about 216,000 dollars, for a home in the capital area and 302 million won, or some 227,000 dollars, for outside of the capital region.

This new measure targeting mortgages in the capital area, where house prices are clearly rising, aims to curb household debt growth. However, some experts say these measures may not be enough to cool the heated market.

Shin Yong-sang/ Korea Institute of Finance
Expectations for lower interest rates and rising home prices are likely to continue.
So, tougher DSR measures will not keep household debts down.

Financial authorities warn they may take additional measures, such as applying the restrictions to jeonse rental loans.

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