The Scale of Households in Negative Housing Equity and Policy Direction

Abstract

ABSTRACT After global financial crisis, the ratio of household debt to GDP was decreasing in other advanced countries such as the U.S., and the U.K. and so on. But, in Korea, household debt (of which residential mortgage loan account for a large part) ratio is still increasing. This paper focuses on the scale and characteristics of households in negative housing equity (those are called House-poors in Korea), and also the socio-economic backgrounds of the formation process. In financial perspective, the problem of negative housing equity depends on financial debt repayment capability. We used DSR (Debt Service Ratio) and LTA (Loan to Asset ratio) as financial indicators to evaluate the debt repayment capability. The critical value of DSR is assumed as 40%, and LTA 100%. The socio-economic backgrounds of the House-poors are as follows : increasing households debt dependency, over lending competition of financial institutions and unreasonable loan in household economy, instability of real estate market, week regulation on mortgage loan. Finally, this paper suggests some implications about the range and the target of public intervention.Key words: Negative Housing Equity, Financial Debt Repayment Capability, DSR(Debt Service Ratio), LTA(Loan to Asset), Mortgage LoanLHI Journal (2014) 5(4):259-269 http://dx.doi.org/10.5804/LHIJ.2014.5.4.259http://lhi.lh.or.kr