The financial authorities are considering applying the debt service ratio (DSR) regulation to high-value jeonse loans. In this case, depending on the borrower's income, the jeonse loan limit could be reduced.
According to the financial sector on the 5th, the Financial Services Commission is reviewing additional household loan regulations to this effect. A senior official at the financial authorities said, "There are observations that, functionally, jeonse loans are one factor fueling real estate prices," adding, "If we are to curb rising real estate prices, there are demands asking whether we should also restrict jeonse loans for people without homes." The Financial Services Commission (FSC) plans to announce measures to strengthen household liability management at the end of this month.
DSR is the ratio obtained by dividing the amount of principal and interest a borrower must repay over one year by the borrower's annual income. If a person with an annual income of 50 million won must repay 50 million won in principal and interest over a year, the DSR becomes 100%.
Banks currently manage DSR at 40% or less. For a borrower with an annual income of 50 million won, the annual principal and interest repayment must not exceed 20 million won. If the borrower takes out a 500 million won jeonse loan at an annual interest rate of 4%, they would pay 1.99 million won a year in interest, or 1.66 million won per month. If there is an existing unsecured loan, the borrower would not be able to take the jeonse loan up to 500 million won.
The financial authorities are said to be running simulations on applying DSR to jeonse loans for people without homes. Because most jeonse loans are structured to pay only interest during the term and repay principal at maturity, authorities are reportedly giving serious consideration to a plan that applies DSR only to the interest repayment amount.