About 60% of Mortgagees Have Debtors` Ratio over 250%

It is estimated that 60% of the individuals who have obtained mortgages from banks have debt ratio over 250%. The debt ratio was obtained by dividing the liabilities from all financial institution by annual income.

On 20th, Director Sung-shun Jung of Office of Bank Supervision and Examination announced, "It’s estimated that 60% of mortgagees have debt ration over 250%."

Most banks plan to charge additional interest about 0.25% to 1% to individuals with debt ratio over 250% when they receive bank mortgages.

In the future, loans will be much more restricted even with securities and the interest rate will be decided upon by the credit ratings of the debtors.

▽Why 250% limit 〓 After analysis debtor`s ratio and arrears rate of prominent banks, the Financial Supervisory Service (FSS) has announced that analysis shows bank clients with debtors` ratio between 100% to 250% has arrearage rate of 0.5% and 0.8% among clients with debtors` ratio between 250% to 300%.

According to this result, the FSS has set 250% as the standard limit for evaluation of `debts exceeding income`. This is similar to government`s standard debt ratio for companies eligible for reorganization in the past.

"Till now mortgage loans didn`t require Income Statement and this became an opportunity to reevaluate redemption abilities of individual debtors and classified the interest rates," said Vice president Young-il Kim of Kookmin Bank.

▽Tougher to obtain loans 〓 Starting from September this year, only loan transactions exceeding amount of 5 million wons were recorded in the Bank Association Database. From coming January, all loan transactions are recorded in the Database regardless of amount. By this act, all individual debts will be exposed clearly and the number of individuals with debtors’ ratio over 250% is expected to increase.

Most banks estimate that 50 to 60% of their current clients have debtors` ratio over 250%.

Especially housewives and independent entrepreneurs without proper income statements are expected to suffer from disadvantageous interest rate.

The Shinhan Bank, which does not impose additional interest rate, plans to decrease the loan limit according to credit ratings. The Good Bank plans to lower their mortgage loan rate from 60% to 50% if their debtors` ratio exceeds 250%.