South Korea's financial authorities have decided to extend the application of the stress debt service ratio (DSR) phase three for regional mortgage loans for an additional six months until the end of this year. This decision comes amid ongoing concerns about a sluggish regional real estate market and the burden of unsold properties, making it difficult to impose further lending restrictions.
On June 18, the Financial Services Commission announced the upcoming change in administrative guidance regarding the stress DSR phase three. This extension was initially set to expire at the end of this month.
The stress DSR is a system that calculates loan limits by adding a certain margin to the actual loan interest rate, reflecting potential future interest rate increases. The authorities implemented phase three of the stress DSR in July of last year but had delayed its application for regional mortgage loans due to the poor performance of the real estate market.
With this extension, regional mortgage loans will continue to be subject to the current phase two stress interest rate until the end of the year. The current stress interest rate for regional mortgage loans is 0.75%. If phase three were to be applied, the stress interest rate for variable-rate mortgages would increase to 1.50%, potentially reducing the borrowing limits for borrowers.
The decision to extend the grace period is interpreted as a recognition that the recovery of the regional housing market remains slow. While the metropolitan area has seen an increase in housing transactions and prices, regions outside the capital continue to face high levels of unsold properties and sluggish transactions.
Recent increases in household loans have been largely influenced by expanded housing transactions in the metropolitan area and rising demand for stock investments, leading authorities to conclude that there is little need for additional tightening of mortgage regulations in the regions.
The Financial Supervisory Service has previously simulated the impacts of applying phase three of the stress DSR. The Financial Services Commission plans to finalize the implementation of the administrative guidance change after gathering public feedback.
* This article has been translated by AI.
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