[Exclusive] Banks Tighten Mortgage Lending and Raise Rates... Household Loans to Get Stricter in the Second Half of the Year

KB Slashes Mortgage Limits from 600 Million to 300 Million Won
Major Banks Tighten Brokered Loans and Mortgage Insurance
Mortgage Rates Reach 7.37% High, Increasing Burden for Genuine Borrowers

Banks have started to actively manage the aggregate volume of household loans in the second half of the year, making it increasingly harder for borrowers to access loans. While housing prices remain high, loan limits are shrinking and fewer loan products are available, thereby increasing the financial burden on genuine homebuyers. Furthermore, interest rates on both mortgage and unsecured loans continue to rise, deepening the 'difficult borrowing environment.'

According to the financial sector on July 9, KB Kookmin Bank has decided to reduce the maximum loan amount for home purchase financing in the Seoul metropolitan area and regulated regions from the current 600 million won to 300 million won, effective from July 10 until further notice. While financial authorities had already lowered the maximum limit for mortgage loans to 600 million won last year, following the June 27 measures, KB Kookmin Bank has taken it a step further by unilaterally lowering its own cap to 300 million won. At the same time, the bank will cap the home purchase financing limit in non-regulated regions, which were previously subject only to the Loan-to-Value (LTV) ratio and no other restrictions, at 300 million won as well. However, this limit does not apply to group loans such as relocation loans, interim payment loans, and balance settlement loans, as well as fund loans, Bogeumjari Loans, and purchase or auction financing for victims of rental fraud. Other major commercial banks—including Shinhan Bank, Hana Bank, Woori Bank, and NongHyup Bank—have not begun considering a reduction in their mortgage loan limits as of yet.

Nevertheless, banks are managing the total volume of household loans by tightening their loan broker channels. Brokered loans, which are handled through third-party loan agencies and brokers rather than through bank employees, account for roughly half of total mortgage lending, making it difficult to control volume should demand surge suddenly. In practice, Shinhan Bank exhausted its quota for broker channel loans for the first time this month and has suspended new household loan applications through broker channels as of yesterday, with plans to resume on August 3. Woori Bank and Hana Bank have both restricted some broker channel loans, and NongHyup Bank has not resumed loan applications after hitting its quota last month. Regional banks have also joined the tightening. For instance, Busan Bank became the first among regional banks to halt new loan applications through brokers as of July 2.

Restrictions are also being imposed on mortgage insurance policies (MCI and MCG) that directly affect loan limits. From July 10, Shinhan Bank plans to temporarily suspend applications for MCI and MCG. These mortgage insurance products allow borrowers to obtain mortgage loans without deducting small security deposits. Once these are suspended, the maximum loan amount in Seoul could decrease by up to 55 million won. KB Kookmin Bank, Hana Bank, and Kyongnam Bank have already stopped offering mortgage insurance products for the purpose of controlling the total household loan volume.

Banks are tightening household loans due to concerns about potentially exceeding the aggregate household loan targets set by financial authorities. In fact, KB Kookmin Bank's abrupt move to halve mortgage loan limits was motivated by the prospect that, even though household loans had experienced negative growth in the first half of the year, a sharp increase observed from May to June could, if continued into July and August, lead to an overshoot of the annual target. The growth in household loans at major commercial banks is also approaching the governance threshold set by the authorities. According to data obtained by Assemblyman Yangsu Lee of the People Power Party from the Financial Supervisory Service, the household loan growth targets for each bank are: 0.70% for Shinhan Bank, 0.70% for Hana Bank, 0.70% for NongHyup Bank, 0.71% for Woori Bank, and 0.59% for KB Kookmin Bank. However, as of the end of last month, the collective household loan balance at the top five commercial banks amounted to 774.9352 trillion won—a 0.9% increase from 767.6781 trillion won at the end of last year. Even in simplistic terms, this rate outpaces the targets suggested by the financial authorities.

As banks manage total household lending within predetermined limits, demand for loans is shifting between banks. The early exhaustion of Shinhan Bank's brokered loan quota this month occurred because other banks restricted their own loans, leading demand to concentrate at Shinhan Bank. Some analysts suggest that a 'balloon effect' could occur, with demand shifting to Woori Bank, which is still offering mortgage insurance products.

An executive at a major commercial bank commented, "As the intensity of total volume management varies depending on the bank, borrowers are moving between banks to find where loans are still available. This means that for the time being, the loan limits and application criteria at each bank could change frequently, leading to unavoidable confusion for genuine borrowers."

With borrowing becoming ever more difficult, the interest burden on borrowers is also increasing. As of July 9, fixed-rate mortgage loans (based on five-year bank bond rates) from the major commercial banks range from 4.66% to 7.37% per annum. Compared to the end of May, the lower end has risen by 0.40 percentage points and the upper end by 0.27 percentage points. Excluding Shinhan Bank (4.66%~6.07%) and Hana Bank (4.969%~6.169%), effective mortgage rates in the 4% range have virtually disappeared. For overdraft loans (limit loans, 6-month maturities), the four other banks—apart from KB Kookmin Bank (4.72%~5.72%)—now all have minimum rates exceeding 5%.

This content was produced with the assistance of AI translation services.