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S. Korea to tighten mortgage loan requirements amid surging debts

Xinhua, December 14, 2015 Adjust font size:

South Korea on Monday announced a plan to tighten requirements for mortgage loan to households from next year as debts increased rapidly amid the record-low interest rates and eased regulations on mortgage financing.

Criterion on whether to allow households to receive home-backed loans from banks will be focused on the debt repayment capability based on annual income, according to the Financial Services Commission (FSC).

The existing judgment on mortgage loans has been concentrated on the value of assets like apartment and home.

The tightened regulations will be implemented from February next year in Seoul and metropolitan areas, while those for provincial areas will be implemented in May.

The tighter requirements for mortgage loan came amid surging household credit that reached nearly 1,200 trillion won (about 1 trillion U.S. dollars).

Household debts extended by banks posted a record-high monthly growth amid the record-low interest rates and eased regulations on mortgage financing.

The Bank of Korea (BOK) cut its benchmark interest rate by 25 basis points in March and June this year to an all-time low of 1.5 percent.

The financial regulator eased regulations on mortgage financing by raising the loan-to-value (LTV) and the debt-to-income (DTI) ratios in August last year.

Sohn Byung-Du, head of the FSC's financial policy bureau, told reporters that the household debts increase was attributable to low interest rates and the eased regulations like the LTV and the DTI ratios, saying that soft-landing will be needed in the home market with the tighter loan regulations. Enditem