Rate Cut and Reason for DSR Implementation

Although the Bank of Korea cut(부동산 시장) its base rate from 2.75% to 2.50% in May, regulators decided to implement DSR (Debt Service Ratio) Phase 3 from July due to rising household debt and financial stability concerns. Under DSR Phase 3, the stress rate applied to loan approvals will increase to 1.5%, effectively reducing borrowing limits to strengthen household debt management. While the rate cut might temporarily boost housing demand, the stricter DSR rules are likely to offset this stimulus.

Effect of Reduced Loan Limits

With DSR Phase 3 in effect, loan limits are expected to shrink by approximately 3–5%. For example, a borrower earning 50 million won annually, taking a 30-year mortgage at 4.2% interest, would see their borrowing limit drop from 297 million won under Phase 2 to 287 million won under Phase 3—a 10 million won (about 3%) decrease. Hybrid and periodic mortgage products face even larger cuts, reducing limits by up to 5–6%, increasing the financial burden on homebuyers.

Regional Market Responses and Outlook

In the Seoul metropolitan area, housing transactions are expected to slow further following the stricter DSR rules. Mid-priced apartments in Seoul and Gyeonggi Province may see reduced sales, while the preference for a single high-quality property (“one smart home”) is likely to persist. In contrast, provincial regions benefit from a six-month grace period where Phase 2’s 0.75% stress rate remains in effect, providing some relief. Experts predict that resolving unsold inventory will take time, and in the short term, the gap between the capital region and provinces is expected to widen.