Interest on Large Jeonse Loans for Non-Homeowners to Be Included in DSR

The financial authorities are reviewing a plan to apply the Debt Service Ratio (DSR) to interest payments on large jeonse loans taken out by people who do not own a home. As President Lee Jae-myung continues to issue warnings against real estate speculation, the financial authorities are also weighing how far they should extend the scope of DSR rules.
According to the financial authorities on the 4th, they are discussing whether to include measures to expand the scope of DSR in the household loan management plan to be announced at the end of this month. Currently, DSR regulations apply to principal and interest payments on mortgage loans and unsecured personal loans. Under the October 15 Real Estate Measures announced last year, the DSR scope was first expanded to include interest payments on jeonse loans for owners of a single home in the Seoul metropolitan area. Even so, only about 40% of household loans are currently subject to DSR rules. In line with the policy of strengthening credit management based on borrowers’ repayment capacity, the financial authorities have been steadily pushing to broaden the range of loans covered by DSR.
This time, the option on the table is to apply DSR to interest payments on large jeonse loans taken out by non-homeowners. Recently, not only mortgage rates but also interest rates on jeonse loans have jumped, sharply increasing borrowers’ interest burdens. In response, the financial authorities are said to be running simulations to assess how much the interest burden rises depending on the size of the jeonse loan.
However, the financial authorities have drawn a line at applying DSR to the principal of jeonse loans. An official at the financial authorities said, "We are reviewing an expansion of DSR coverage, but even the timing of any announcement has not yet been decided," adding, "We are not considering applying it to the principal of jeonse loans." A proposal to include loans of 100 million won or less in the DSR regime is also under discussion. At present, DSR applies only to loans exceeding 100 million won. The authorities view smaller loans as a "blind spot" in the regulatory framework.
The financial authorities are also examining whether to segment policy loans by income level and apply DSR accordingly. They note, however, that coordination with the Ministry of Land, Infrastructure and Transport will be a key variable.
With the financial authorities having set a tighter target for household loan growth this year—below 1.8%—there is growing interest in whether the supply target for policy loans will be reduced compared with last year.
gogosing@fnnews.com Park So-hyun Reporter