Korea’s financial watchdog said Wednesday it is seeking to adopt steps to ease households’ repayment burden of home-backed loans as the slumping property market erodes the value of collateral.

The Financial Supervisory Service said it is studying plans to have banks convert maturing mortgages exceeding a lending limit, or the loan-to-value ratio, into credit loans instead of retrieving them.

The LTV ratio is one of the main tools to curb household loans by restricting the maximum amount of money that homeowners can borrow in line with the value of their collateral. Banks are allowed to extend mortgages amounting to just 50 percent of the value of a residence in Seoul and its adjacent areas. For provincial areas, the ratio stands at 60 percent.

The move aims to ease households’ debt-servicing burdens as the sluggish property market is undercutting the value of collateral, raising the number of borrowers under high pressure to repay debt, it added.

South Korea’s property market is in a slump as the economy is losing steam and more households are delaying buying homes on prospects that housing prices will lower further.

Currently, local banks’ average LTV ratio stands at 48.5 percent and the amount of maturing loans exceeding the lending limit reached around 44 trillion won ($39.1 billion) as of end-March, according to industry data. Falls in home prices in some areas near Seoul are feared to push up the amount of mortgage lending to be repaid, analysts said. (Yonhap News)