Regulators have decided to extend a set of deregulations on mortgages or housing-collateralized loans -- introduced on Aug.1, 2014 -- by a year from the scheduled expiry date of end-July.

The Financial Supervisory Service on Tuesday said in a statement that it would extend the eased home loan-application rules by another year until the end of July 2016.

But the extension of eased rules is raising questions about the consistency in policies as only weeks ago authorities pledged to curb the record household debt.

One of the two major deregulations, initiated by the Finance Ministry and the financial regulator last year, feature the unified loan-to-value ratio of 70 percent at all financial firms nationwide for any mortgage applicant.

Before August 2014, the LTV ratio was different according to lenders -- banks or nonbanking financial firms or insurance firms -- and according to regions where their apartment locations -- Seoul metropolitan or other major cities or provincial areas).

Some lenders had offered only the 50-percent ceiling in LTV under formerly tight rules.

In addition, for the Seoul metropolitan area the debt-to-income ratio has been set at 60 percent for the entire financial sector, while some borrowers had only enjoyed DTI of 50 percent according to their residential districts.

An FSS official admitted the critical problem of the nation’s rising household debt, which is estimated to have reached 1.2 quadrillion won ($1 trillion). He, however, clarified the deregulations still help normalize the housing market and contribute to the overall economy.

He added that the FSS, instead, plans to raise other consumer-loan regulations.

A market insider in the first-tier banking sector said, “Considering that the apartment-collateralized lending takes up a large part of outstanding loans, the government (Finance Ministry) and the financial regulator appear to be contradicting themselves.”

He said the authority should have lowered the LTV and DTI ceilings if it really wants to increase the efficacy of countermeasures against snowballing household debt.

In a joint unveiling of the measures on July 22, the financial regulator, Finance Ministry and the Bank of Korea said that banks will be instructed to take borrowers’ redemption capability into greater consideration than their collateral from next year.

When the U.S. Federal Reserve conducts an interest rate hike, South Korea will have no choice but to follow suit to block a massive capital outflow.

Economists warn that a large portion of local mortgage borrowers would be saddled with a heavier interest burden under the scenario.

By Kim Yon-se (kys@heraldcorp.com)