Loan volume caps place 'one-sided burden' on income-rich, asset-poor borrowers

Academics have raised concerns that authorities' policy of capping total loan volumes to manage the supply of credit could place a disproportionate burden on those who have income but lack assets. Calls have also emerged for tighter application of the already-strengthened income-based debt service ratio, or DSR, framework to better manage borrower soundness and loan planning.

Seok Byeong-hun, a professor of economics at Ewha Womans University, said loan volume caps produce an adverse effect that works against certain groups. "Specifically, between those who have income but lack assets and those who have assets but lack income, it is the former who bear the one-sided harm," he said.

Seok said authorities should shift away from artificial volume caps and toward DSR-centered regulation. "We need to open the door so that borrowers can take out loans rationally, within the bounds of their own income and repayment capacity," he said.

Particularly concerning, he said, are young people and new employees who earn high incomes but have not yet accumulated assets. "For them, buying real estate without a loan is virtually impossible," he said. "Purchase prices, jeonse and monthly rent are all rising at the same time — a triple surge. If the loan window shuts at a certain point in the second half of the year, we will have cut off the very ladder that allows them to borrow within their repayment capacity and secure stable housing."

Seok did, however, express agreement with the government's stated goal of keeping household debt at around 80 percent of GDP. "There is academic evidence that when the household debt ratio exceeds 80 percent, the burden of principal and interest repayments can trigger a domestic demand slump," he said. "But the process of getting there must be gradual, and a micro-level approach that takes individual repayment capacity into account is necessary."

Choe Byeong-cheon, a senior adviser at law firm Sejong, acknowledged that volume caps do produce some degree of restraint given that finance is one pillar of liquidity. "However, DSR regulation has already been expanded and a strong measure that accounts for the soundness of financial consumers is already in operation," he said. "On top of that, imposing an additional ceiling on the loan amount itself is nothing more than an arbitrary judgment, and it is hard to find any rational principle behind it."

He added that volume management focused on suppressing lending ultimately aims to control real estate prices, but that this goal inevitably runs into the public's resistance, making it a burden for the government as well. He said the government should revise its objective of artificially reining in real estate prices.