Loans for Young and Low-Income Genuine Borrowers Ultimately Exempted from Total Loan Control... The Paradox of the 1.5% Regulation

Financial Authorities Consider Exempting Loans for Young and Low-Income Borrowers from Total Lending Controls
1.5% Growth Target Maintained... Loan Access Remains Difficult for Genuine Borrowers
Expanded Loan Supply Unlikely to Resolve Excessive

The government is considering a plan to exclude loans for young people and low-income primary homebuyers from the scope of household loan growth management. There are also discussions to make group loans, such as loans for the final balance, relocation expenses, and interim payments, exempt from the total lending cap. As strict quantitative controls have led to greater harm for genuine homebuyers, the government appears to be expanding the range of exemptions. However, with the annual household loan growth target for this year remaining at 1.5%, controversy persists that even borrowers with sufficient repayment capacity will continue to face restricted access to loans.

According to financial authorities on July 27, the Financial Services Commission is discussing ways to manage the annual household loan growth rate within 1.5% this year while ensuring smooth loan supply to young people and low-income primary homebuyers.

A senior official at the financial authorities stated, "We will take into consideration the inconveniences young people and low-income primary homebuyers are facing due to current loan regulations," adding, "There are no plans to raise the lending cap, and we are reviewing ways to provide additional support while maintaining the current stance."

This year, the financial authorities set the household loan growth target for all financial institutions at 1.5%, lower than last year’s 1.7%, and are managing this by allocating net lending caps at the bank level. Currently, policy-based finance for low-income groups and private mid-interest loans are excluded from net household loan increases. Under this same approach, expanding exemptions to loans for young people and low-income genuine homebuyers is being actively considered.

This move is largely seen as a follow-up to President Lee Jaemyung’s directives at the national real estate policy debate held on July 23. At that time, in response to calls for easing loan regulations for actual homebuyers, President Lee stated, “Targeted support should be provided for young people, newlyweds, first-time (purchasers), and low-income housing needs.”

Adverse effects of the lending cap have already become apparent in the field. As banks quickly exhaust their lending ceilings, KB Kookmin Bank recently reduced its mortgage loan limit from up to 600 million won to a uniform 300 million won. With regulations being tightened to meet quantitative targets, criticism is growing over the difficulties young people and real homebuyers face in securing funds.

According to the Ministry of Data and Statistics, the homeownership rate among people under 39 was 27.7% last year, the lowest since 2017 when the statistics were reformed. This marks a decline of 13 percentage points compared to 40.7% in 2018-2019.

Including group loans as an exception to the lending cap is also being considered. This would apply to interim payment, final balance, and relocation loans. Recently, as banks have become wary of exceeding the lending limit, they have curtailed or restricted group loan supply, causing difficulties in securing funds for those scheduled to move in, as well as for members of reconstruction or redevelopment associations.

However, while financial authorities are seeking additional support measures for genuine homebuyers under the current loan regulations, they remain firm on the 1.5% cap. This stance reflects concerns that relaxing the cap would send the wrong signal to the market. Nevertheless, some argue that expanding exceptions to include loans for young people, low-income homebuyers, and group loans could undermine the effectiveness of total loan management, suggesting that raising the target may be a more realistic option.

Another financial authority official commented, "Detailed measures to support young people and low-income genuine homebuyers have not yet been finalized," and added, "We are looking for technical ways to support genuine homebuyers while keeping the current lending cap."

The market points out that simply increasing the exceptions while maintaining a strict lending cap is unlikely to solve the underlying issues. Adding more exceptions in response to the negative impact of excessive regulations only exposes the limitations of the current system, undermining policy consistency and market predictability.

Deciding who should qualify for support remains a challenge. Financial authorities are likely to limit support mainly to young people without homes and first-time homebuyers, while also setting standards related to housing prices. However, controversy over fairness seems inevitable for those excluded from support for narrowly missing the cut.

A financial industry official said, "With the government focusing more on curbing demand through loan regulation than expanding real estate supply, the limitations of the policy continue to emerge," and added, "The ability of financial authorities to manage this dilemma—upholding total loan management while protecting genuine homebuyers—is now facing a full-fledged test."

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