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FAQ

  • How do you judge the stability of mortgages and other household debts?

  • Thanks to stringent regulations on DTI and LTV ratios, sensitivity to income or asset price shocks is thought to be relatively low.

    < Mortgage Loan Regulatory Systems of Major Countries >

    Korea US Hong Kong Germany Japan
    Mortgage Loan /Nominal GDP 33.40% 72.30% 37.30% 52.40% 36.20%
    Regulatory System Direct Regulation Indirect Regulation Direct Regulation Mixed Form Indirect Regulation
    LTV Limit 40~60% None 60~70% 60% Indirect Regulation
    DTI Limit 40% None 60% None None

    Housing prices in Korea are not rising as fast as in other major countries and there has been no sign of significant fall in the prices, yet.

    The average rate of housing price increase between 2001 and 2007 was 9.4 percent in the US and 12.6 percent in the UK while it was only 6.7 percent in Korea.

    Between January and September 2008, housing prices in Korea rose by 4.1 percent while other countries saw 4~15 percent decline in housing prices.

    The principle and interest payment burden is expected to be reduced for Korean households for the following three reasons;

    - Korea's household debt has increased mainly among the high-income class

    - the share of lump-sum repayment is low and c) the term to maturity is increasing.

    9US: -15.9%, UK: -4.0%, Ireland: -9.3%
    10Percentage of lump-sum repayment of bank mortgages: 86% (year-end 2003) 40.8%

    < Term to Maturity of Bank Mortgages >

    Unit: %, trillion won

    As of 3 years or less 3~5 years Over 5 years Balance
    1 year or less 13 years 510 years Over 10 years
    Year-end 2005 57.1 35.2 21.9 9.1 34.6 8.9 24.9 190.2
    Year-end 2006 41.7 23.9 17.8 7.4 50.9 11.5 39.4 217.0
    Year-end 2007 37.8 21.0 16.7 6.9 55.3 14.4 40.9 221.6
    End-Jun. 2008 35.6 20.1 15.6 6.5 57.9 13.4 44.5 229.5

    Source: Financial Supervisory Service

    The government is also devising measures to alleviate the household debt repayment burden including the following;

    - guarantee of supplementary collateral for the depreciated value in housing prices

    - extension of maturity and grace period for mortgage loans (e.g. 3 years 5 years)

    - support for conversion of floating rate loan to fixed rate loan.

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