The reason the Lee Jae-myung administration is taking out additional loan restrictions four months after the October 15 real estate measures last year is because the number of households burdened by debt is rapidly increasing. The financial authorities believe that if individual debt is not managed through strict Debt Service Ratio (DSR) regulations, the country may lose the opportunity to erase its reputation as a ‘debt republic.’ The fact that the rising trend of housing prices is not slowing down due to half-hearted real estate measures without supply measures is also cited as a reason for raising the authorities’ sense of crisis. Some are concerned that confusion in the housing market will be further aggravated if end-users of jeonse are included in the DSR regulations without effective supply measures in place.
◇ A ‘debt republic’ weighed down by debt
According to the financial sector on the 12th, the government plans to announce an additional household debt management plan next month that includes high-amount jeonse loans for those who do not own a home in the DSR. DSR is a loan regulation that prevents the ratio of principal and interest repaid on various loans to the borrower’s annual income from exceeding 40% (bank standard). If non-homeowners’ rental loans (interest) are included in the DSR, the overall lending capacity is reduced accordingly.
The reason the financial authorities are releasing additional cards at a time when the lending threshold is so high is because the level of domestic household debt has reached a dangerous level. According to the Bank of Korea, the ratio of household debt to Korea’s gross domestic product (GDP) last year (as of the end of June) reached 89.7%. Concerns were raised everywhere that the increased household debt could become the biggest detonator of the Korean economy, but it rose slightly again from the end of 2024 (89.6%). There are only a few countries in the world where this ratio exceeds 90%, including Canada. The government’s goal is to lower the household debt-to-GDP ratio to 80%.
Another reason is that housing prices are still not rising, especially in the metropolitan area. According to the Korea Real Estate Agency, apartment prices in Seoul have shown an upward trend for 49 consecutive weeks since turning upward in the first week of February last year (0.00% → 0.02%). As the government has implemented various curbs to eradicate gap investments, rental prices are also rising. The balance of jeonse loans at the five major commercial banks, including Kookmin, Shinhan, Hana, Woori, and Nonghyup, reached KRW 122.6498 trillion at the end of last year. It has not decreased significantly compared to the end of June last year (KRW 122.9773 trillion) when the current government implemented the first loan regulations. Some are also discussing a plan to include policy finance, which has been encouraging the recent rise in housing prices, in DSR. This is because demand is focused on Bogeumjari Loan, a policy mortgage product, due to the cold wave in lending by commercial banks. However, an official from the financial authorities said, “Comprehensive consideration is needed considering the unique purpose of policy lending.”
◇ The ‘loan cold wave’ is expected to continue this year as well
Although the banking sector has begun to loosen the bars on household loans in the new year, many predict that it will not be easy to get loans this year as well. Major commercial banks plan to present this year’s household loan growth target of 2% to the financial authorities. Considering that the government’s estimate of this year’s current economic growth rate (real GDP growth rate + inflation rate) is 4.1%, it is only half of that.
Kookmin Bank and Kakao Bank, whose household loan growth rate exceeded the target last year, should pursue lending more conservatively this year. It is expected that each bank will adjust additional interest rates and strengthen loan screening to curb the increase in household loans. In addition, the analysis is that if the application of DSR is expanded to jeonse loans or policy loans, there is a high possibility that some of the common people and actual consumers will also be hit.
Some point out that loan regulations alone have limitations in stabilizing the real estate market. The government plans to announce real estate supply measures this month, but many predict that the effect of stabilizing the market will not be significant.
Reporter Park Jae-won/Seo Hyeong-kyo wonderful@hankyung.com
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