[Financial Microscope] Collective Lending Eased, but Ordinary Mortgages Face 'Cold Snap'... Tight Limits and Rates Near 7%

Household Loan Capacity Expanded by 30 Trillion Won,
But Regular Mortgage Growth Remains Limited


Mortgage Rates at Major Four Banks Now 4.15%–6.59%
Predicted to Approach 8% Amid Rising Market Rates

Although financial authorities have further increased banks’ capacity for household loans this year, the lending threshold for ordinary homebuyers is not expected to come down anytime soon. While collective loans for homebuyers—such as those who signed contracts several years ago and are preparing to move in—have become more accessible, the financial authorities’ stance of tightening household loan management remains in place. On top of this, a rise in market interest rates is raising concerns that the upper end of mortgage loan (ju-dam-dae) rates could approach 8% in the future. Ordinary homebuyers are expected to face the double challenge of tight loan limits and high interest rates.

According to the financial sector on August 26, banks plan to maintain their strengthened loan management policies, and after receiving an additional allocation for net household loan growth limits from the Financial Supervisory Service, they will review whether they have room to expand general mortgage and personal loan issuance.

An official at a major bank said, "If banks ease regulations first, there is a risk that loan demand will surge all at once and affect real estate prices, so it is difficult for banks to immediately loosen limitations. We need to see details such as each bank's household loan limit and how collective loans are managed in order to gauge the potential for additional general mortgage lending."

Earlier, the Financial Services Commission raised this year’s target for household loan growth across all financial sectors from the previous year’s 1.5% to 3.0% as part of the “8·13 Measures.” As a result, the capacity for net household loan growth this year has doubled—from about 30 trillion won to 60 trillion won.

However, this increased lending capacity is slated to be primarily supplied to collective loans, such as bridge loans for relocations and interim or final payment loans for soon-to-move-in apartment buyers. The intent is to provide funds for genuine buyers with pre-existing contracts who need money for move-in, while preventing an expansion of loans aimed at general home purchases that could overheat the real estate market. In other words, although the total “pie” for household loans has grown, the portion available to ordinary homebuyers has not increased significantly.

In reality, even the supply of mortgage loans has not yet expanded. From August 1 to 20, the average daily mortgage loan approvals by the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori Bank) stood at 212.6 billion won, down 11.9% from 241.4 billion won in the previous month.

Banks remain cautious about expanding their mortgage lending. Only NH Nonghyup Bank resumed offering floating-rate mortgage products as of August 20. By contrast, Hana Bank decided to suspend the acceptance of applications for new mortgage and jeonse loans through loan brokers for cases to be executed in November. KB Kookmin Bank also reduced the loan limit for mortgages for home purchases from 600 million won to 300 million won as of July 10.

It is also unlikely that regulations on personal loans will be eased immediately. On August 5, Shinhan Bank lowered the maximum limits for new personal loans and overdraft loans to 100 million won and 50 million won, respectively, within the borrower’s annual income.

A banking official said, “Although there hasn’t been a sharp rise in personal loans, there is also no clear drop, partly because this is not a season for performance bonuses and the stock market is sluggish. It is unlikely that regulations will be loosened anytime soon.”

With loan limits tight and rates rising, the burden on ordinary homebuyers is increasing. Not only is it hard to secure a loan, but even if approved, borrowers must shoulder higher interest costs.

Currently, the mortgage loan rates at the four major commercial banks range from 4.15% to 6.59% annually, with the upper limit already reaching the high-6% range. The five-year AA-rated unsecured bank bond yield, which serves as a key benchmark for fixed-rate mortgage loans, stood at 4.388% as of August 24, up 0.893 percentage points from 3.495% at the beginning of the year.

Factors such as the rise in U.S. Treasury yields due to increasing U.S. federal government debt, ongoing concerns about inflation stemming from the prolonged Middle East conflict, and the possibility of additional rate hikes by the Bank of Korea are all pushing market rates higher. If banks maintain their own lending restrictions and keep household loan rates high in order to manage total loan balances, it cannot be ruled out that the upper end of mortgage rates may exceed 7% and approach 8%.

A financial industry source said, "While the government has expanded its net household loan growth target, for now, the additional lending capacity is likely to be allocated first to collective loan end-users, borrowers with mid to low credit ratings, and young people. For ordinary homebuyers, there will be little increase in lending capacity, and with higher interest costs as well, tough borrowing conditions are unlikely to improve in the near future."

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