The financial authorities will strictly manage the increase rate of household loans this year within the nominal growth rate of 3.8% while focusing on supplying funds to local areas. To achieve this, they will increase the lending capacity of local banks, and will also provide incentives to commercial banks when handling local dwellings mortgage loans.
On the 27th, the Financial Services Commission announced the "2025 Household Debt Management Plan." Secretary-General Kwon Dae-young noted during a briefing, "It is difficult to feel reassured regarding the increase in mortgage loans in February," adding, "We will manage the increase rate of household debt stably this year while ensuring that there are no obstacles for the underprivileged and those who genuinely need it."
The annual growth rate of household debt fell from 9.7% in 2021 to 3.1% in 2022, recording a decline and then rebounding to just over 2% last year. The household debt-to-GDP ratio has dropped from 98.7% in 2021 to around 90.5% last year.
The financial authorities are committed to managing the growth rate of household debt within 3.8% this year, with the household debt-to-GDP ratio aimed to be around 90.5%. Secretary-General Kwon stated, "The annual loan management (increase) target limits by financial sector are set at 1-2% for commercial banks, 5-6% for local banks, the late 2% range for mutual finance, and around 4% for savings banks."
The reason for granting higher limits to local banks compared to commercial banks is to stimulate the flow of money into stagnant local areas. Additionally, the financial authorities decided that if commercial banks increase their handling of local dwellings mortgage loans, part of the expanded amount will be additionally reflected in the annual loan management target limit. For example, if Bank A increases its handling of local dwellings mortgage loans by 100 billion won compared to the previous year, it will be allowed to lend an additional 50 billion won, which is 50% of that amount.
The policy loans identified as the cause of the rapid increase in household loans will not see a reduction in supply scale. The financial authorities have decided to supply 60 trillion won through policy loans this year, similar to last year. Policy loans are low-interest loan products supplied by the government to ensure housing stability for those without a home, including stepping-stone mortgage loans, buffer jeonse (rental deposit) loans, newborn special loans, and the housing voucher loan.
The financial authorities plan to exclude all policy loans and business closure conversion loans from household loan management performance. This is intended to ensure that funds are smoothly supplied to the underprivileged and vulnerable groups amid concerns about economic slowdown. Furthermore, to prevent the recurrence of loan concentration and stagnation similar to last year, household loans will be managed on a monthly and quarterly basis.
The financial authorities announced they will implement a three-stage debt service ratio (DSR) starting in July. DSR is the ratio derived from dividing the total principal and interest repayment amount due by the borrower in a year by their annual income. When the three-stage system is introduced, both jeonse and policy loans will be factored into the DSR calculation. Currently, banks calculate DSR using only mortgage and credit loans, while second-tier finance considers only mortgage loans.
The financial authorities will also strengthen the management of jeonse loans and guarantees. They have decided to unify the guarantee ratio for jeonse loan guarantees from the three major guarantee institutions, including Korea Housing Finance Corporation (HF), Housing and Urban Guarantee Corporation (HUG), and Seoul Guarantee Insurance (SGI), to 90% of the loan amount. The Financial Services Commission stated that it would also consider additional reductions in the guarantee ratio only in the Seoul metropolitan area.