Starting on the 16th, the debt service ratio (DSR) will be calculated higher when purchasing dwellings in the greater Seoul area and other regulated zones, reducing loan limits. This is because the "stress rate (additional rate)" added to mortgage rates in DSR calculations will be raised from 1.5% to 3.0%. For an office worker with an annual income of 100 million won, the mortgage loan limit is expected to decrease by up to 86 million won.
According to the "analysis of borrower impact from stress rate increase" data distributed by the Financial Services Commission on the 15th, starting tomorrow, a borrower with an annual income of 100 million won who takes out a variable-rate loan to purchase dwellings in the greater Seoul area and other regulated zones will have a loan limit of 510 million won. Compared with when the stress rate was 1.5%, the loan limit drops by 86 million won.
The result assumes a mortgage at a 4.0% lending rate with a 30-year term and equal principal-and-interest amortization. Under the same conditions, if the borrower takes a fixed-rate (hybrid) loan, the limit falls from 600 million won to 533 million won, a decrease of 67 million won. There was no change in the limit for fixed-rate (periodic) loans. In a hybrid loan, the rate shifts to a variable rate after five years; in a periodic loan, the fixed rate is reset every five years.
Under the same loan conditions (4.0% rate, 30-year term, equal principal and interest), when a borrower with an annual income of 50 million won takes a variable-rate loan, the limit decreased from 294 million won to 251 million won, a drop of 43 million won. For fixed-rate loans, the hybrid type saw the limit reduced by 37 million won, and the periodic type by 22 million won, respectively.
Shin Jin-chang, director general of financial policy at the Financial Services Commission, said at a briefing that "simulation results show that when the lower bound of the stress rate is raised, borrowers' loan limits decrease by 6.6% to 14.7%."
DSR refers to the share of loan repayment (principal + interest) in annual income. When calculating DSR, the stress rate is added to the lending rate to preemptively reflect the possibility of future rate hikes and curb excessive loan expansion. If the stress rate rises and the rate is set higher, the borrower's principal-and-interest repayment increases and the loan limit decreases.
Authorities also decided to reflect jeonse loans in DSR for owners of one dwelling, and the analysis showed that if a borrower with an annual income of 50 million won takes a 200 million won jeonse loan, the DSR rises by 14.8 percentage points. As DSR goes up, the loan limit decreases. Under the same conditions, a borrower with an annual income of 100 million won saw the DSR rise by 7.4%.
A borrower who has already taken out a jeonse loan in the greater Seoul area or other regulated zones will not have it applied to DSR when renewing the contract and extending maturity without any increase. However, if there is an increase, the jeonse loan is included in DSR. According to the Financial Services Commission, there are about 52,000 owners of dwellings in the greater Seoul area and other regulated zones who have taken out jeonse loans.