**3-Stage Stress DSR to be Implemented in July:**
**Increased Surcharge Rate for the Seoul Metropolitan Area from 1.2% to 1.5%**
The rest of the country will maintain the current rates until the end of the year.
Starting in the latter half of the year, households earning an annual income or salary exceeding 100 million KRW in the Seoul metropolitan area will see their mortgage loan limits reduced by more than 30 million KRW. This is due to the implementation of the 3-stage Stress DSR (Debt Service Ratio), which raises the minimum surcharge interest rate to 1.5%. However, for non-metropolitan areas, only half of this, or 0.75%, will be applied until the end of the year.
There is interest in whether this tightening of loans will lead to a slowdown in the rise of housing prices in the metropolitan area and a reduction in household debt.
According to the ‘3-Stage Stress DSR Implementation Plan’ confirmed and announced during a meeting to check household debts by the Ministry of Finance, Financial Services Commission, Bank of Korea and Financial Supervisory Service on the 20th, starting from July 1st, a minimum surcharge interest rate of 1.5% (up from the current 1.2%) will be applied to all financial sectors, including mortgage loans, credit loans, and other loans such as card loans and non-housing collateral loans.
Depending on the type of interest (variable, mixed, periodic), the mortgage loan limit available from banks in the metropolitan area will decrease by 10 to 30 million KRW (3–5%).
Stress DSR reflects future interest rate risk by adding a surcharge to the loan interest rate to calculate the loan limit. Applying a surcharge that reflects future interest rate risk has the effect of reducing the loan limit.
For instance, if someone with an annual income of 100 million KRW takes out a mortgage loan with a 30-year maturity, a 4.2% annual interest rate under mixed terms (5 years fixed followed by a variable rate), and equal principal and interest repayment conditions, the limit would decrease from 630 million KRW under stage 2 to 590 million KRW under stage 3, a reduction of about 33 million KRW (5%).
With the same conditions using a variable-rate product, the limit would decrease from 590 million KRW to 570 million KRW, a reduction of 19 million KRW (3%), and for periodic (changing interest every 5 years) type, it would decrease from 650 million KRW to 640 million KRW, a reduction of 18 million KRW (3%).
The 3-stage DSR application for areas outside Seoul, Gyeonggi, and Incheon will be postponed for six months until the end of this year. The surcharge interest rate remains at 0.75%, maintaining the current mortgage loan limits.
The existing stage 2 DSR interest rate will apply to group loans with resident recruitment announcements made by the end of next month and regular mortgage loans with real estate sales contracts already signed. Consequently, there is an early demand to secure loans before the implementation of the stage 3 DSR, leading to a rush at bank counters.
Participants in the day’s review meeting pointed out the necessity for preemptive management due to a general increase in household loans centered on mortgage loans, resulting from the recent rise in housing transactions in April. They emphasized the need to be prepared for risk factors such as expectations of further interest rate cuts and the expansion of depositor protection limits in the secondary financial sector.
Kwon Dae-young, the secretary-general of the Financial Services Commission, remarked on the potential for a rush of loans before the tightening regulations, stating that they would rigorously monitor whether financial firms comply with monthly and quarterly management goals and take immediate action when necessary.