Policy finance surges due to housing-related support

Policy finance surges due to housing-related support

최초입력 2025.07.21 10:53:24

Image is for illustrative purposes and not related to the article. (Pixbay)

Public financial institutions in South Korea are expanding housing-related financial support, driving the total balance of policy finance close to 2,000 trillion won ($1.43 trillion).
Critics argue that the massive influx of policy funds is undermining the government’s efforts to rein in household debt.
According to the National Assembly Budget Office on Sunday, the balance of policy finance held by public financial institutions in the country surged by about 655 trillion won in the past five years from 1,318 trillion won in 2019 to 1,974 trillion won in 2024.
If this trend continues, the total policy finance volume is expected to surpass 2,000 trillion won in 2025.
Housing finance accounts for the largest portion of policy finance, with institutions such as Korea Housing & Urban Guarantee Corp. (HUG) and Korea Housing Finance Corp. providing various loans and guarantees to help citizens secure housing.
The balance of housing finance in 2024 exceeded 900 trillion won for the first time, reaching 914 trillion won.
It accounted for 46 percent of all policy finance.
The surge began amid low interest rates during the COVID-19 pandemic in 2020 and 2021 and expectations of rising housing prices, and has not since slowed down.
“With the new government’s emphasis on the public function of finance, the overall amount of policy finance support is likely to continue to increase,” said Kim Jung-sik, professor emeritus of economics at Yonsei University.
The issue at hand, however, is that this government move has created a blind spot in managing household debt.
While the government introduced regulations limiting mortgage loans to 600 million won on June 27 and tightened the debt service ratio (DSR) rules in July - reducing lending capacity in the Seoul metropolitan area by 3 to 5 percent - policy finance continues to expand.
In particular, government-backed mortgage loans, including jeonse loans, or loans for long-term housing rental deposits, and loans for home purchases, are exempt from DSR regulations, meaning their supply remains steady.
These programs are even said to have contributed to the rise in jeonse prices and home values.
“While expanding housing finance contributes to residential stability, it also has the potential to weaken financial institutions’ incentives to manage their own risks,” the National Assembly Budget Office noted. “Close oversight is essential when operating housing-related policy finance.”
DSR is the ratio of a borrower’s annual debt repayment obligations to their annual income.
Banks currently allow loans only if the DSR is under 40 percent, and savings banks under 50 percent.
However, jeonse and policy loans are exempt from DSR requirements due to their role in supporting low-income housing.
The Bank of Korea recently noted in its Financial Stability Report that applying DSR regulations to policy loans would increase the share of DSR-regulated loans in total household lending by 5.6 percentage points, aiding debt management.
Still, authorities are cautious about reducing policy finance, wary of backlash for neglecting support for low-income households.
However, they are considering applying DSR rules to jeonse and policy mortgage loans if household debt continues to rise beyond July.
“With the implementation of the third stage of the DSR regulation, we have an infrastructure in place to tighten lending regulations at any time,” said an authority official. “If household debt continues to grow at an alarming rate, we may expand DSR requirements to include jeonse and policy finance loans.”
The Financial Services Commission already reported the idea of applying DSR to policy loans to the State Affairs Planning Committee in June.
HUG also recently tightened criteria, making individuals in households with two or more homes and a direct relative over age 65 ineligible for jeonse loans and loans for home purchases.
This signals a gradual move toward stricter oversight of policy lending.
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Policy finance surges due to housing-related support

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