Housing Market Slowdown: Stress DSR for Regional Mortgages to Remain Until Year-End

Regional mortgage stress testing under the debt service ratio (DSR) will continue to be applied at level two for the second half of this year.

The Korea Federation of Banks announced on June 30 that it plans to maintain the current level two stress DSR in accordance with changes to administrative guidance from the Financial Services Commission.

As a result, regional mortgages will continue to be subject to a lower stress interest rate compared to the level three rate applied in the metropolitan area and regulated regions.

The stress DSR is a system that assesses loan limits by adding a certain margin to the actual interest rate to reflect the risk of future interest rate increases. The stress interest rate is calculated based on the difference between the highest average interest rate for new household loans over the past five years and the current interest rate, and it is announced every June and December for application over the following six months.

Previously, financial authorities decided on June 18 to extend the suspension of the level three stress DSR for regional mortgages, which was set to end at the end of this month, for an additional six months due to the ongoing downturn in the regional housing market. Consequently, a stress interest rate of 0.75 percentage points is currently applied to regional mortgages at level two.

A financial industry official stated, "This extension may alleviate some financial pressure on regional construction companies."