FSC Announces Plan to Implement Third-stage Stressed DSR Rule as Scheduled from July 1

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FSC Announces Plan to Implement Third-stage Stressed DSR Rule as Scheduled from July 1 May 20, 2025

The Financial Services Commission held a meeting on household debt with officials from related government ministries, industry groups, and five major banks on May 20.

At the meeting, officials reviewed recent household debt situation and risk factors and discussed detailed measures for implementing the third-stage stressed debt service ratio (DSR) rule as scheduled from July 1, 2025. Moreover, the financial authorities, officials from related ministries, and financial industry groups vowed to more closely communicate and cooperate to ensure stable management of household debt.

Household Loans

In 2025, the trend of household loan growth remained stabled in the first quarter. However, in April, the outstanding balance of household loans across all financial sectors increased KRW5.3 trillion from the previous month (up KRW0.7 trillion) , growing at a notably faster pace. In April, home mortgage loans grew at a faster pace (up KRW3.7 trillion → up KRW4.8 trillion) , and other types of loans including credit loans shifted back up from the decline seen a month ago (down KRW3.0 trillion → up KRW0.5 trillion) . This pattern of growth appears to be continuing in May.

At the meeting, officials assessed that the overall growth of household loans in April was mainly due to the recent rise in housing transactions pushing up mortgage loans and the low base effect from the previous month where sales or cancellation of nonperforming debt took place at the end of the first quarter. Considering the expectation of interest rate cuts in the future and the effects of the scheduled increase in deposit insurance coverage from September 1 this year on nonbank financial institutions, officials emphasized the need to ensure a preemptive management over household debt.

Implementation of Third-stage Stressed DSR Rule

After coordinating with related authorities, the FSC decided to implement the third-stage stressed DSR rule* as scheduled from July 1, 2025.

• The stressed DSR rule imposes a certain level of additional stress rate for the purpose of calculating a borrower’s DSR as it takes into account the possibility of the borrower facing heavier repayment burden in the future with increases in interest rates.

The following are key details of the third-stage stressed DSR rule.

First, all types of household loans under the DSR rule across all financial sectors will be subject to the third-stage stressed DSR rule with the application of additional stress rate of 1.50 percent. However, mortgage loans for purchasing homes located outside the Seoul metropolitan area (which include Seoul, Gyeonggi-do, and Incheon areas) will continue to be subject to the additional stress rate of 0.75 percent (application of the second-stage stressed DSR rule) until the end of December this year.

Second, for mortgage loans that have mixed or periodically changing interest rate structures, the application of additional stress rate will be adjusted upward to encourage financial institutions to expand the issuance of fixed interest rate loans instead of those with mixed or periodically changing rate structures.

Third, group loans for new apartment subscriptions with the announcement made until June 30 and mortgage loans for purchasing homes with the real estate contract signed by June 30 will be subject to the current second-stage stressed DSR rule.

Further Plan for Household Debt Management

With the implementation of the third-stage stressed DSR rule, all types of household loans under the purview of DSR regulation will begin to reflect future changes in interest rate, which will help to ensure a steady management over household debt. Since stressed DSR can act as an automated control on borrowers’ loan limits especially in times of falling interest rates, the effectiveness of stressed DSR regulation is expected to grow in time.

However, considering the declining proportion of non-Seoul area mortgage loans this year, the authorities decided to postpone the application of the third-stage stressed DSR rule on non-Seoul area mortgage loans for six months. There will a reassessment at the end of this year to decide on whether to raise the additional stress rate on non-Seoul area mortgage loans after having a comprehensive review on local economies and the impact on overall household debt. Moreover, the financial authorities will closely monitor the impact on non-speculative homebuyers to make sure that there is no excessive crunch in money supply for them.

As there are concerns about a potential expansion in the pace of household loan growth in May, financial companies are urged to bolster their own household debt management capacities. The financial authorities will continue to closely monitor the monthly and quarterly management targets of financial companies and be prepared to take swift actions when it becomes necessary.

• Please refer to the attached PDF for details.

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