FSS to ease households’ needs to pay back loans

Korea’s financial watchdog said yesterday it is seeking to adopt steps to ease households’ repayment of home-backed loans as the slumping property market erodes the value of collateral.
The Financial Supervisory Service said it is studying plans to have banks convert maturing mortgages exceeding a lending limit, or the loan-to-value (LTV) ratio, into credit loans instead of retrieving them.

The LTV ratio is one of the main tools to curb household loans by restricting the maximum amount of money that homeowners can borrow in line with the value of their collateral. Banks are allowed to extend mortgage loans amounting to just 50 percent of the value of a residence in Seoul and its adjacent areas. For provincial areas, the ratio stands at 60 percent.

The move aims to ease households’ debt-servicing burdens as the sluggish property market is undercutting the value of collateral, raising the number of borrowers under pressure to repay debt, it added.

Korea’s property market is in a slump as the economy is losing steam and more households are delaying buying homes on prospects that housing prices will lower further.
Currently, local banks’ average LTV ratio stands at 48.5 percent, but falls in home prices in some areas near Seoul are feared to push up the amount of mortgage to be repaid, analysts said.
Home-backed lending extended by local banks reached 223.8 trillion won ($198.2 billion) as of the end of May, accounting for 27.2 percent of banks’ won-denominated loans, according to the central bank. The delinquency ratio of mortgage lending reached 0.93 percent as of end-May.

Potential sustained falls in property prices are feared to spark a spiral of deflation in asset prices, market watchers noted.

In an effort to revive the real estate market, the government recently eased regulations on mortgages by making it possible for people to borrow more against their income level.

Yonhap