People who signed home purchase contracts between July and Aug. expected to be impacted
By Jun Ji-hye
As more banks implement measures to curb the growth of mortgage loans in response to pressure from financial authorities, anxiety is rising among homebuyers, particularly those seeking homes for actual residence rather than speculation.
Previously, banks chose to raise loan interest rates as a way to tighten their lending practices, which proved profitable for them. However, they are now taking more drastic measures, including reducing loan terms and lowering loan limits.
Such measures came as Lee Bok-hyun, the governor of the Financial Supervisory Service (FSS), criticized the banks for having chosen what he described as an “easy” way out by raising interest rates in response to the authorities’ instruction to curb the growth of household loans.
“The recent increase in mortgage loan interest rates by banks is not what the authorities intended,” Lee said during his TV program appearance on Sunday, signaling a strong intention to intervene in the management of household loans.
According to the financial watchdog, the household loan balance, excluding policy loans, at the four major banks — KB Kookmin, Shinhan, Hana and Woori — amounted to 517.5 trillion won ($387 billion) as of Aug. 21. This has already surpassed the household loan balance target of 512.7 trillion won that these banks set for the end of this year.
Following the FSS governor’s warning, KB Kookmin Bank decided to reduce the maximum mortgage loan term for properties in the Seoul metropolitan area to 30 years.
Previously, the maximum term was 50 years for borrowers aged 34 or younger and 40 years for others. But starting Thursday, it will be uniformly shortened to 30 years in an effort to curb loan demand.
According to an internal analysis by the bank, reducing the mortgage term from 40 to 30 years would decrease the loan limit for a borrower with an annual income of 50 million won from 400 million won to 350 million won, when the interest rate is set at 3.85 percent per annum.
Shinhan Bank has temporarily suspended conditional loans for home rental, called “jeonse” in Korea. Some of these jeonse loans sought by tenants ended up funding the homeowners in their speculative purchase of new homes.
The bank also stopped offering mortgage insurance. As a result, homebuyers will face an additional burden for security deposits, which will range from 25 million to 55 million won, effectively reducing the available loan limits.
Woori Bank will take the similar measures, starting Monday.
A pedestrian passes by banners promoting mortgage loan products in front of a bank in Seoul, Sunday. Yonhap
These sudden changes in lending, however, are expected to deal a blow to some homebuyers, especially those who signed home purchase contracts between July and August and are now preparing to obtain loans for the final payment.
There are growing concerns that the banks’ latest actions, combined with the second phase of stricter debt service ratio (DSR) rules set to take effect on Sunday, could result in a significant number of cases where the available loan amount is lower than initially planned.
Inquiries are already pouring in at online communities where people exchange information on real estate purchases.
“I had planned to get a loan with a repayment period of 50 years, but the term has suddenly been limited to 30 years. This abrupt change has disrupted my repayment plan and reduced the loan limit, causing significant complications,” one user wrote.
Banks are also cautiously expressing their concerns, arguing that authorities are attributing the recent surge in household loans to shortcomings in banks’ portfolio management rather than a failure in policy.
“Without raising interest rates, effective loan management cannot be achieved,” an official at a major bank said. “Adjusting loan limits is also a burden for banks.”
