South Korean regulators tighten mortgage risk management

South Korean financial authorities are implementing stricter measures to manage household debt as mortgage interest rates continue to rise. The Financial Supervisory Service (FSS) is considering increasing the risk weightings for high-risk mortgage loans—specifically those exceeding 400 million won with a Debt Service Ratio (DSR) higher than 35%. This measure could apply to both new and existing loans, potentially forcing banks to hold more capital to maintain stability.

As banks face increased capital requirements, industry experts warn this may lead to reduced loan limits or higher interest rates for borrowers. This comes amid a period of rising market rates, driven by domestic factors and recent interest rate hikes by the U.S. Federal Reserve. While the FSS has identified rising interest rates as a major financial risk and is exploring ways to assist vulnerable borrowers through debt restructuring and interest rate reduction requests, critics argue that current total volume management policies are suppressing competition among banks, making it difficult to lower rates effectively.