Relief for Local Mortgages... Second-Phase Stressed DSR Maintained Through Year-End
Korea Federation of Banks Announces Second-Half Stressed DSR Guidelines
Stress Rate Set at 1.5% with a Basic Application Ratio of 50%
The second phase of the stressed debt service ratio (DSR) for local mortgage loans will remain in effect through the second half of this year.
The Korea Federation of Banks announced on June 30 that, following the administrative guidance amendment by the Financial Services Commission, the current second-phase stressed DSR will continue to be applied through December 31, 2026.
The stressed DSR is a system that adds a certain margin (the stress interest rate) to the actual loan interest rate in order to reflect the possibility of future interest rate hikes when calculating loan limits. The DSR is calculated by applying this stress rate on top of the actual loan interest rate, and as the applicable phase increases, the loan limit decreases.
The stress interest rate is determined based on the difference between the highest weighted average interest rate on newly issued household loans by deposit banks over the past five years (as per the Bank of Korea, it was 5.64% in December 2022) and the current interest rate. The rate is announced every June and December, and is applied for six months within a range of 1.5% (minimum) to 3.0% (maximum). However, mortgages in the Seoul metropolitan area and other regulated regions are subject to a rate of at least 3.0%, separate from these rules.
With this measure, local mortgage loans will be subject to a basic application ratio of 50% for the second-phase stress rate, which is lower than the 100% ratio of the third phase. As a result, the actual stress interest rate applied to local mortgages will be 0.75 percentage points, which is half of the minimum 1.5%. For mortgages in the Seoul metropolitan area and regulated regions, a 3.0% stress rate and a 100% basic application ratio will apply.
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For credit loans and other types of loans excluding mortgages, a 1.5% stress interest rate and a 100% basic application ratio will apply. However, the stressed DSR is only applied to credit loans if the total outstanding balance exceeds 100 million won.
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