South Korea to tighten rules on 50-year mortgage lending

SOUTH Korea’s financial regulator will tighten rules related to banks’ mortgage lending as household debt continues to hover at record levels.

The Financial Services Commission (FSC) plans to strengthen oversight of borrowers’ ability to repay and to tighten rules related to debt-service ratios to ensure borrowers get a robust review when applying for 50-year maturity mortgage loans, it said on Wednesday (Sep 13).

Household debt hit a record 1,075.0 trillion won (S$1.1 trillion) as at the end of August, led by mortgages, which jumped by the most since February 2020, the Bank of Korea (BOK) said. Growing household debt is one reason the BOK has kept a tightening bias while holding its policy rate at a restrictive level. It was among areas of concern highlighted last week by the International Monetary Fund.

The regulator pinpointed 50-year mortgage – newly launched this year – as one of the main factors behind a sharp increase in debt. These mortgages have become popular as they require lower monthly payments from borrowers.

“In order to correct the lax lending behaviour in the process of handling 50-year loans,” banks need to conduct vigilant checks to ensure lending is not excessive, the FSC said. BLOOMBERG