SEJONG, Jan. 8 (Korea Bizwire) - South Korea’s finance minister nominee said Friday that he has no plan to tighten a set of eased mortgage regulations amid rising public demand to tackle mounting household debt.
The government eased the loan-to-value (LTV) and the debt-to-income (DTI) rules in August 2014, shortly after the inauguration of Finance Minister Choi Kyung-hwan, in order to give home buyers greater access to mortgages and thus help boost the sluggish local housing market as well as the overall economy.
The LTV ratio was adjusted to 70 percent at large, up from a range of 50 to 85 percent depending on where the home is located, while the DTI ratio was set at a uniform rate of 60 percent.
The two ratios are aimed at controlling the amount of loans available to home buyers based on their income and ability to pay back debt.
Last year, the Financial Services Commission (FSC), the financial regulatory body, extended the rule relaxation for another year, citing that it has helped to normalize the housing market and had a positive impact on the national economy.
“I have no such plan (to withdraw the easing),” Yoo Il-ho, who was named last month to succeed Choi as the minister of strategy and finance, said in a report submitted to parliament ahead of his confirmation hearing slated for next Monday.
“The LTV and DTI was introduced to cool down an overheated real estate boom some 10 years ago. They have been supplemented and implemented case by case to keep up with the changing property market,” he said. “Since they were eased, they have contributed to helping people engage in home transactions and boost domestic demand.”
Critics called for tighter control on ballooning household lending in the face of a U.S. rate hike and a slowdown in China, with the total amount reaching 1,160 trillion won (US$966.5 billion) in September at a record speed.
Yoo, 60, said he will take another approach to phase down household loans, referring to the Seoul government’s latest scheme to stiffen the loan screening process by money lenders and encourage fixed-rate loan programs.
“I will make efforts to improve the structure of loans to ensure a soft landing,” said the researcher-turned-politician, who will also double as the deputy prime minister in charge of economic affairs.
The new measures are intended to help borrowers to restructure existing floating-rate loans and make it harder for both lenders and borrowers to sign up for new loan contracts.
The finance minister nominee, meanwhile, voiced his opposition to tax increases, saying a hike in corporate and other taxes could have a negative impact on the economy.
“A direct increase in taxes should be made as a means of last resort because it increases the burden of the public,” he said, adding the government will instead try to boost tax revenue by revitalizing the economy or reducing tax exemptions.
He also said the South Korean economy will be able to grow in the 3-percent range this year, helped by a continued recovery in domestic demand and the effects of stimulus measures.
The government has forecast Asia’s fourth-largest economy to expand 3.1 percent this year from last year.