Korea Implements Stress DSR Phase 3: Mortgage Lending Limits Tighten Further
South Korean financial authorities implemented Phase 3 of the stress Debt Service Ratio (DSR) regulation on July 1, marking another significant tightening of mortgage lending standards as the government intensifies efforts to control household debt growth. The new measures are expected to further reduce borrowing capacity for homebuyers and potentially cool the overheated real estate market. Understanding Stress DSR Phase 3 The core feature of Phase 3 involves applying more stringent interest rate stress scenarios when evaluating borrowers' repayment capacity. Unlike Phase 2, which used current interest rates as the baseline, Phase 3 requires lenders to assess borrowers' ability to service debt assuming interest rates rise by 3 percentage points from current levels. For example, if current mortgage rates stand at 4%, lenders must now verify that borrowers can manage payments if rates reach 7%. This forward-looking approach aims to prevent payment difficulties should i...