As interest rates continue to rise, financial authorities are expected to strengthen measures to alleviate the burden on vulnerable borrowers. The plan includes increasing the supply of policy financial support and policy mortgages while encouraging banks to expand long-term fixed-rate loans.
According to the financial sector on September 27, the Financial Services Commission is considering expanding the supply of policy financial products such as the Sunshine Loan and the Bogumjari Loan. As market interest rates rise, the interest burden on borrowers with variable rates increases, prompting efforts to reduce interest rate risks, particularly for low-income and low-credit borrowers.
The supply of policy financial support will also increase next year. The K-Minsheng Protection Loan, aimed at low-credit borrowers, will receive 300 billion won in funding, bringing the total supply to 600 billion won.
The scale of the Sunshine Loan will also rise from 5.9 trillion won this year to 6.2 trillion won next year. Additionally, the expansion of policy mortgage products such as the Bogumjari Loan and the Didimdol Loan, aimed at reducing housing costs for low-income individuals, is under consideration. The Financial Services Commission is expected to propose an increase in the budget for policy financial products to the National Assembly.
Banks will be encouraged to implement measures to mitigate the impact of rising interest rates. A representative example is the 'interest rate cap system,' which prevents loan rates from exceeding a certain level. Recently, Woori Bank proposed a '7% cap on credit loan rates.'
However, the competitiveness of fixed-rate products remains a concern. Even if borrowers can avoid the risk of rising rates, they may find it difficult to choose fixed-rate options if the immediate rates are higher than variable rates. Currently, the interest rate on 10-year fixed-rate mortgage loans at some banks is about 1 percentage point higher than that of 6-month variable-rate loans. In response, financial authorities plan to discuss providing incentives for banks to lower rates and launch long-term fixed-rate products.
The stress total debt service ratio (DSR), which considers the potential for future interest rate increases when determining loan limits, is also expected to be maintained for the time being. The stress DSR is a system that adds a certain level of additional interest when calculating DSR to account for the increased repayment burden due to rising rates during the loan period. While this may reduce the amount of money that can be borrowed immediately, it serves as a buffer to prevent a sudden increase in repayment burdens if rates rise in the future.
However, there are concerns that uniformly reducing loan limits during a period of rising interest rates could stifle funding for low-income individuals and genuine borrowers. It has been suggested that regulations should be applied flexibly based on the borrower's income and repayment ability.
Kim Dae-jong, a professor at Sejong University, stated, "As the interest burden on vulnerable borrowers increases during periods of rising rates, expanding fixed-rate loans is necessary. To encourage banks to offer more fixed-rate options, incentives in terms of policy financing support or tax and funding measures should be provided."
* This article has been translated by AI.
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