South Korea is toughening its lending regulations with the third phase of the so-called stress debt service ratio(DSR) system.

The Financial Services Commission announced at a meeting on Tuesday that the tougher regulations will start in July.

Once the system enters its third phase, lenders will charge a one-point-five percent stress rate, more strictly factoring in the borrower’s ability to repay the loan under potentially stressful conditions.

The government believes this latest measure will decrease the upper limit on mortgage loans by an average of three percent to five percent.

The system, introduced in February last year to contain ballooning household debt and cool the overheated housing market in the capital region, initially added zero-point-38 percent to the interest rate to deter borrowers from taking on debt they might struggle to repay.

The stress DSR increased to zero-point-75 percent in September last year with the beginning of the second phase.