Individuals with excess loans will find it harder to take out mortgage-backed loans from late this year, according to new guidelines from the Korean government aimed to curt household debt.

The Financial Services Commission (FSC) announced on Thursday that it has decided to introduce stricter credit screening guideline that would cap credit limits for those already laden with debt load. A lender whose debt service ratio (DSR) exceeds 70 percent against his or her annual income could become rejected from further loans backed by homes.

DSR measures debt repayment ability of borrowers by taking account of the total principal of debts that a lender has taken out on top of the maturity of repayment and interest and interest rates. This is considered stricter than the debt to income ratio (DTI) that has been applied to mortgage borrowers in the country. Currently, local financial institutions only reflect estimated interest payment of previous debts that a lender owes. The tougher screening guideline is expected to drive down the credit limit of a lender who has already borrowed sizable loans.

“We plan to start to apply DSR using data provide by Korea Credit Information Services as early as late this year,” said an unnamed official of the FSC, adding that banks would examine whether a bower’s DSR exceeds 60 percent to 70 percent for mortgages and 70 percent for other loans, with expectations that the new rule should curb excessive household debts.

According to the Bank of Korea (BOK) on Thursday, the country’s household debt jumped 11 percent to 1,223.7 trillion won ($1.036 trillion) in January-March from a year earlier.

Currently, banks have no direct access to data that allows them to calculate exact DSR, but starting later this year, they will be able to get loan data of borrowers from Korea Credit Information Services for DSR assessment.

The financial authorities are also considering applying DSR to both housing mortgages and credit loans. Getting loans in the banking sector will likely be tougher as banks will have more accurate access to a borrower’s repayment ability.

By Kim Hyo-sung

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]