The Korean government is considering how to deal with the recent rapid increase in household debt. It is currently discussing the expansion of non-recourse mortgage loans, early adoption of a debt service ratio (DSR), establishment of uniform DSR criteria and so on to this end.
Earlier, the government was planning to adopt a DSR in 2019. At present, it is looking to do so next year. In addition, it is mulling over the application of uniform DSR criteria to all mortgage loans as in the case of debt-to-income (DTI) and loan-to-value (LTV) ratios. “As we already mentioned, we are planning to let financial institutions have their own rules with regard to DSR application,” the government remarked, adding, “However, discussions may follow if confusion arises from their different rules.”
“The biggest problem concerning household debt is loans that cannot be repaid,” said professor Shin Se-don at Sookmyung Women's University, continuing, “Mortgage loans should be provided for those who can repay their loans after some DSR criteria are established and the DTI and LTV ratios are adjusted for a higher level of financial soundness.”
The expansion of non-recourse loans, which are currently available only in the form of loans from the government for low income earners in South Korea, was first mentioned by the government in January this year. At that time, it said that type of loans can be provided by private financial companies as well down the road. The companies are opposed to the expansion though.