Finance Minister-nominee Choi Kyung-hwan’s plans to ease mortgage loan regulations are drawing mixed reactions from financial policymakers and regulators as to whether they could bolster South Korea’s slumping real estate market or end up fueling the nation’s spiraling household debt.

The main bone of contention is whether or not to deregulate the current loan-to-value and also debt-to-income ratio rules for mortgage loans, as Choi is proposing.

On Friday, the three-term Saenuri Party lawmaker indicated that both LTV and DTI ratios need to be raised above the current levels.

“The current housing market regulations can be compared to wearing summer clothes in the winter,” he told reporters on Friday while discussing his real estate market rejuvenation blueprint.

His comments were aimed at criticizing the housing regulations introduced during a property market boom under the Roh Moo-hyun administration in the early and mid-2000s that he believes are incompatible with today’s sluggish real estate industry.

The LTV rate, a gauge used by banks to determine the maximum amount of a mortgage based on the price of the property, is currently set at 50 percent for Seoul and surrounding metropolitan areas, and 60 percent in rural regions. And the ceiling on the DTI ratio is 50 percent for those buying a property in Seoul and 60 percent for the surrounding metropolitan area.

Choi believes that by expanding mortgage lending to homebuyers, the market would start to pick up, with more people buying homes, which in turn would push up housing prices.

Financial policymakers, however, are expressing caution over relaxing LTV and DTI rules to revive the housing market as they had been a significant tool for curbing household debt.

Financial Services Commission chairman Shin Je-yoon, is also opposed to housing market deregulations.

The country’s top financial regulator told reporters last week that if LTV and DTI rules are eased they “could accelerate economic uncertainty” from mounting household debt, which surpassed 1,000 trillion won ($936 billion) at the end of 2013.

Song In-ho, a research fellow at the Korea Development Institute, also noted in a recent report that easing the rule would cause the current debt level to spike again and make the national economy more sensitive to external factors.

If the LTV ratio climbs from the current 50 percent to 60 percent, national housing prices would inch up by 7 percent. But at the same time, household debt as a share of GDP would rise 2 percentage points, he pointed out.

The finance minister nominee said he would further elaborate on revised LTV and DTI regulations as well as his reform plans during his parliamentary confirmation hearing to be held in coming weeks.

By Oh Kyu-wook (596story@heraldcorp.com)