South Korea Tightens Loan Rules on Bonuses, Halving Borrowing Power for Some

South Korea's financial authorities are set to significantly strengthen the criteria for including bonuses in loan assessments, a move expected to drastically reduce the borrowing capacity for high-income earners. This policy shift comes amid concerns that substantial bonuses paid by major corporations, including tech leaders Samsung Electronics and SK Hynix, are inflating the housing market.

New simulations from commercial banks reveal a sharp decline in potential loan amounts when bonuses are averaged over a longer period. For a borrower earning an annual salary of 100 million won (approximately $72,000 USD) who received a 150 million won bonus, the maximum housing loan could drop from 600 million won to 285 million won if the bonus is spread over three years. This is less than half of the original amount.

The Financial Services Commission (FSC) announced the policy change, stating that bonuses and other irregular income will now be averaged over three years, rather than the previous two-year average. This aims to create a more realistic assessment of borrowers' repayment capabilities and prevent loans that exceed their sustainable limits, addressing the "income illusion" created by large, one-off payments.

This measure is interpreted as a direct effort to preemptively curb speculative investment in real estate, particularly by employees of semiconductor companies who have recently seen significant bonus payouts due to industry booms. The FSC has also been encouraging major corporations to voluntarily manage employee loans more stringently, urging them to implement measures like prioritizing principal and interest repayment, limiting loans to multiple homeowners, and restricting loans for high-priced properties.

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If this year's income increased due to bonuses, previously it was averaged with last year's income, but from now on, it will be expanded to a 3-year average to flatten it.