The government is set to strengthen loan regulations and reduce the connection between real estate and finance to improve the structure of household funds concentrated in real estate. It plans to gradually decrease housing loan guarantees, excluding certain groups, and expand the scope of the Debt Service Ratio (DSR) application.
The Ministry of Finance announced these measures as part of its '2026 Economic Growth Strategy' on July 14.
Initially, the government will tighten loan regulations for speculative non-resident homeowners and gradually expand the DSR application range. The DSR is a system that determines loan limits based on the ratio of a borrower's annual income to their principal and interest repayment amounts. The government aims to enhance loan management focused on borrowers' repayment capabilities by broadening DSR application in loan assessments.
Additionally, the government will strengthen the soundness management of high-risk mortgage loans. It is considering measures to increase the burden on financial companies for high-risk mortgage loans and impose additional capital reserve requirements. This is intended to reduce the financial sector's exposure to real estate-related risks.
A Ministry official stated, "These measures are expected to block speculative loan demand and address regulatory blind spots," adding that they plan to explore institutional improvements, including increasing the burden of high-risk mortgages.
Policy financing criteria and operational methods will also be revised. The income requirements for policy loans will be adjusted to use the median income standard instead of the previous method, rationalizing the support targets. The total management of policy loans will be strengthened to enhance the efficiency of resources.
The government also plans to alleviate the phenomenon of excessive demand for policy financing during periods of rising market interest rates. To achieve this, it will flexibly adjust the interest rates of fund loans to maintain an appropriate interest rate difference between banks' own mortgage loans and policy financing.
The housing loan guarantee system will be restructured. The government will gradually lower the guarantee ratio for borrowers, excluding young people without homes and vulnerable groups, to reduce the scale of guarantees. This action reflects concerns that housing loan guarantees lead to excessive leverage in rental markets.
Furthermore, the government will strengthen the guarantee requirements for the rental deposit return guarantee system. It plans to gradually lower the rental price ratio requirement for guarantee enrollment and adjust the guarantee fee rates based on the actual occurrence rate of guarantee incidents. This aims to enhance the sustainability of the guarantee system.
Policies to improve the capital market will also be pursued. The government will introduce a productive finance Individual Savings Account (ISA) to guide the flow of funds into productive finance and allow foreign investments in exchange-traded funds (ETFs). A fact book detailing the current state of productive finance will be regularly published to provide relevant information to the market.
The government explained that these measures aim to alleviate the real estate-centered financial structure and encourage funds to flow into productive areas such as corporate investment and capital markets. It also plans to establish detailed systems to manage the increase in household debt stably while enhancing the soundness of the financial system.
Yoo Byeong-hee, head of the Economic Policy Bureau at the Ministry of Finance, stated, "We are seeking institutional improvements to internalize social costs, such as increasing the burden on high-risk mortgages and imposing additional capital reserve requirements," adding that they are preparing to gradually reduce real estate policy loans and related guarantees.
* This article has been translated by AI.
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