ID :
146000
Wed, 10/13/2010 - 17:20
Auther :

S. Korea should cap mortgages to curb household debt: report

SEOUL, Oct. 13 (Yonhap) -- South Korea should maintain its current ceiling on
mortgages in order to prevent "excessive" household debt from jeopardizing
economic stability, a report said Wednesday.
The Korea Development Institute (KDI) report said the level of South Korea's
household dept is high compared to other countries, and high interest rates are
adding to households' financial burdens.
"The large size of household debt is mainly due to people borrowing money from
financial institutions to buy homes in recent years," said Hur Seok-kyun, the
author of the report.
He also said repayment arrangements on outstanding debts are disadvantageous to
borrowers.
"There is a high percentage of liabilities that require borrowers to pay back the
principal in a lump sum that may pose problems." the economist said.
He stressed that due to such conditions, the country's mortgage loans are
vulnerable to decline in home prices, borrowers' earning levels and interest rate
shocks that can rock the country's economic health.
"Considering such weaknesses, it would be advisable to maintain the
debt-to-income (DTI) ratio aimed at limiting borrowing so people do not borrow
more money than they can pay back," he said.
The DTI ratio limits the maximum amount of money people can borrow according to
their yearly gross income.
He stressed that criticism about the current DTI ratio being overly stringent may
be overblown and calls to ease DTI rules to fuel real estate transactions should
be reconsidered.
"It would be advisable for financial regulators to maintain the DTI rules while
adjusting repayment methods that do not burden people who borrowed money," he
said.
The remarks came after Seoul announced in late August that it will temporarily
ease DTI borrowing rules to help bolster the local housing market, which has
experienced a sharp drop in transactions since late last year.
Real estate transactions in and around Seoul, which account for half of South
Korea's population, fell noticeably starting last October.

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