People walk by a closed-down store in Namdaemoon [Namkung Jin-wung = timeid@ajunews.com]
South Korea’s financial regulators will tighten mortgage loan guidelines for banks beginning Feb 1 next year as part of efforts to put a brake on the snowballing household debt in the country.
The new guidelines from Financial Services Commission's (FSC) require banks to more closely assess households' ability to pay back loans fully, moving away from the current focus on whether borrowers can pay back interest
Scrutiny will be tightened on borrowers who live outside Seoul and the surrounding metropolitan area currently not subject to debt-to-income ratio when they borrow money. They will be asked to provide more data on their regular income and or spending, like credit card data and insurance payments.
The guideline comes a day before the start of a two-day policy meeting of US Federal Reserve which is widely expected to hike rates for the first time in nearly a decade.
Policymakers worry higher rates in the United States could eventually filter into higher borrowing costs at home and hurt households, especially as household debt has been rising at a swift pace compared to previous years due to record-low interest rates.
South Korea's household credit reached a record 1,160 trillion won (US$1 trillion) in the third quarter on the back of the government-led property market-boosting measures and a low-interest rate trend.
"The guideline is aimed at building a new system that banks can manage borrowers' credit risk in advance," Sohn Byung-doo, director-general of the Financial Policy Bureau at the FSC, told reporters on Monday.
South Korea’s housing market enjoyed some respite this year, largely thanks to record-low interest rates, but an oversupply of new homes and tighter lending rules may bust the property market bubble within years. .
Earlier this month, The Korea Development Institute (KDI), a government think tank, warned that this year's surge in new home starts could lead to a massive oversupply in three years,
By Alex Lee
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