All banks will be required to adopt tougher guidelines for mortgage loans in the second half of this year, officials said Sunday, in accordance with the government's latest push to curb household debt.
The decision was made last Friday at a meeting of financial regulators, senior bank executives and other financial institutions, the Financial Services Commission said in a statement.
Currently, people's ability to repay home mortgages is calculated on the basis of their home mortgage principal and interest payments as a proportion of their annual income.
The stricter lending calculation for home mortgages, named the Debt Service Ratio by the financial authorities, will use a new system that measures all debt principal and interest payments as a proportion of annual income.
Financial authorities have said the DSR system will better assess a borrower's repayment ability and reduce the risk of default.
Non-banking financial institutions will adopt the tougher rules from next year, the FSC said.
South Korea's outstanding household debt jumped to a record 1,468 trillion won ($1.36 trillion) in the January-March period, up 8 percent from a year earlier, according to preliminary data from the Bank of Korea.
The growth of household credit has slowed for five straight quarters, but FSC Vice Chairman Kim Yong-beom told the meeting that "various risk factors" remain, as a hike in the interest rate could increase the burdens on vulnerable borrowers. (Yonhap)