Household Debt Up 6.2 Trillion Won in July... Growth Slows for Second Month, Total Cap Expansion Remains a Key Variable

Cumulative Increase Reaches 35.3 Trillion Won This Year
Growth in Mortgage and Unsecured Loans Slows
Government Raises Annual Household Loan Cap by 30 Trillion Won
Okgwon Lee: "Supply Funds to Real Borrowers, Curb Speculative Demand"

Last month, household loans across all financial sectors increased by more than 6 trillion won. Although the pace of growth slowed for the second consecutive month—driven by the financial authorities' strengthened overall control of household credit and declines in the stock market—the increase in mortgage loans and unsecured loans remained at a high level. In addition, the rise in housing transactions in the Seoul metropolitan area and the government’s upward revision of its annual household loan cap have led to projections that household lending could accelerate again in the coming months.

According to the Financial Services Commission and the Bank of Korea on August 14, household loans across the entire financial sector grew by 6.2 trillion won in July compared to the previous month. The monthly increase surged from 3.5 trillion won in April to 9.3 trillion won in May, then declined for two consecutive months, recording 8.3 trillion won in June and 6.2 trillion won in July. The cumulative increase from January to July totaled 35.3 trillion won, which has already exceeded the government’s original annual net growth target of roughly 30 trillion won.

The pace of increase in both mortgage loans and other loans slowed simultaneously. In July, mortgage loans across all financial institutions rose by 3.5 trillion won and other loans by 2.7 trillion won, both below the previous month’s increases of 4.5 trillion won and 3.8 trillion won, respectively. Notably, the uptick in unsecured loans—classified under other loans—declined from 2.6 trillion won to 2 trillion won, leading the overall slowdown in growth.

By sector, banks saw a reduced rate of increase in household lending. At the end of July, outstanding household loans at banks stood at 1,194.8 trillion won, having grown by 5.4 trillion won from the previous month. This marked a decrease of 2.2 trillion won compared to the largest monthly increase since August 2024 (a 9.2 trillion won rise), recorded in June (7.6 trillion won), but still remained at a substantial level.

The outstanding balance of mortgage loans at banks rose by 3.4 trillion won last month, reaching 948.4 trillion won. The increase in housing transactions in Seoul and other metropolitan areas between April and May had a delayed impact on loan demand. However, the ongoing decline in ‘jeonse’ lease transactions and a slowdown in the need for interim payments on new housing supply reduced the monthly growth by 900 billion won—from 4.3 trillion won in the previous month. Among mortgage loans, home lease loans (‘jeonse’ loans) decreased by 800 billion won, making it the 11th consecutive month of decline since September last year.

Other bank loans, including unsecured loans, grew by 2 trillion won. As individuals scaled back their stock investments due to falling share prices, the monthly increase in these loans was reduced by 1.3 trillion won compared to the previous month. Specifically, net stock purchases by individuals dropped sharply from 5.2 trillion won in June to 3.4 trillion won in July.

In the non-bank financial sector, household loans rose by 800 billion won in July, led by savings banks and specialized credit finance companies—the same as the previous month’s increase.

The financial authorities and the Bank of Korea believe that although growth in household loans has slowed, vigilance remains essential. Of particular note is the government raising the annual cap on household lending to support genuine housing demand, which is seen as a key variable going forward. Through the 'Comprehensive Financial Measures for Real Estate Market Stability' announced the previous day, the Financial Services Commission raised the target growth rate for household loans across all financial institutions this year from 1.5% to 3.0%. As a result, the allowable net increase in lending this year rises from about 30 trillion won to about 60 trillion won.

Lee Seungyeop, Head of the Market Overview Team at the Market Operations Department of the Bank of Korea, stated, "Although household loan growth moderated in July compared to the previous month, it still exceeds typical levels, so we are monitoring it closely. Because the changes in real estate-related policies, such as the tax reforms on August 3 and financial support measures on August 13, could have a complex effect on loan demand from August onward, we are keeping a close watch on these developments." He added, "Although the overall cap has increased, the actual trend in household borrowing reflects not only demand but also banks’ lending attitudes and broader market conditions, so it is difficult to make definitive predictions."

The financial authorities instructed lenders to ensure that funds are smoothly supplied to real buyers for bridge loans, interim payments, and final payments in line with the raised lending cap, while also curbing speculative demand.

Lee Eogwon, Vice Chairman of the Financial Services Commission, emphasized, "Lending regulations directly impact borrowers’ funding plans, so it is vital that financial institutions carefully accommodate borrowers affected by these regulations on site. However, it is important to ensure that the adjustment of the lending cap is not perceived in the market as a relaxation of credit controls, thereby stimulating speculative demand. As there are still risk factors such as ongoing expectations of price increases centered on the Seoul metropolitan area, increased housing transactions, and funding needs during the summer vacation period, we must closely monitor trends in household loans going forward and manage them rigorously."

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