Korean Economy News
S. Korea’s July household debt rise by fastest in 8 mos despite regulations

By Boo Jang-won

South Korea’s household loans extended by local banks accelerated by the fastest pace in eight months, surging 6.7 trillion won ($5.9 billion) in July from a month ago in spite of tougher loan regulations.

According to data released by the Bank of Korea on Wednesday, banks’ household loans amounted to 737.7 trillion won in July, up 6.7 trillion won from a month earlier. It is the largest monthly increase since November when 8.8 trillion won worth of more loans were borrowed from banks.

The on-month addition in July is nearly 400 billion won more than that of July in 2016 with 6.3 trillion won, and triples the July average from 2010 to 2014.

The new government with an aim to cool off the sizzling housing market released a fresh set of tougher action in June by reducing mortgage loan limits and restricting resale of purchase rights of new apartments. Under the new guideline, the loan-to-value (LTV) ratio was reduced from 70 percent to 60 percent and the debt-to-income (DTI) ratio was lowered from 60 percent to 50 percent, starting July 3. In other words, home buyers became restricted in borrowing beyond 60 percent of the property value and 50 percent of their annual income.

Outstanding mortgage loans from banks nevertheless amounted to 554.6 trillion won as of July 31, up 4.8 trillion won from a month ago. The on-month gain has been on a steady rise, recording 3.8 trillion won in May and 4.3 trillion won in July.

Individual mortgage loans have continued to rise as the number of home purchases increased while collective loans for new apartment buyers kept up its growth pace, said the Bank of Korea.

The government announced even stricter lending rules - LTV and DTI ratios in closely-watched regions to be toughened to 40 percent - earlier this month to contain the runaway housing prices.

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