Apartment buildings and multiplex houses in Seoul
Kookmin Bank, South Korea’s largest lender under KB Financial Group, will tighten lending conditions to curb mortgage loan growth in step with the government efforts to contain home price rises, according to financial industry sources on Monday.
The new measures, the first of its kind among domestic banks, followed a string of their consecutive mortgage rate hikes since July of this year to keep loan growth under control.
But increased borrowing costs have failed to cool the housing market, which financial authorities said were being driven in large part by speculative demand in anticipation of interest rate cuts. Home prices, particularly in the Seoul Metropolitan Area, have recovered, or surpassed pre-pandemic levels.
Starting on August 29, Kookmin will reduce the maximum term on all mortgage loans to 30 years from 50 years for the buyer under the age of 34 of a home in the Seoul Metropolitan Area.
It will also introduce limits on personal loans secured by houses to 100 million won ($75,500) per each of their projects like buying a car or home rennovation.
Additionally, Kookmin will scrap the grace period granted to mortgage and secured loan borrowers to allow them to delay principal repayment for up to one and three years, respectively. During the grace period, they only need to pay an interest on the loans.
New mortgage loans to be extended from August 29 will be ineligible for mortgage indemnity guarantees, which will result in cutting their loan limits by 55 million won for the purchase of a home in Seoul; 48 million won in the surrounding Gyeonggi Province and 28 million won in other metropolitan cities, according to the sources.
For home buyers in Seoul with an annual salary of 50 million won, as an example, the maximum amount of secured loans they can borrow will be cut by more than 100 million won, applying both the reduced term of mortgage loans in the absence of a mortgage insurance guarantee.
Kookmin will also reduce credit loan limits to 50 million won per borrower from the current 100 million-150 million won.
Lee Bok-hyun, governor of the Financial Supervisory Service
Kookmin’s move to apply stricter lending criteria came after Lee Bok-hyun, governor of the Financial Supervisory Service (FSS), said in a morning radio program on Sunday he felt a strong need to intervene in curbing home price rises in the Seoul Metropolitan Area.
In the radio show, he criticized domestic banks of using lending rate hikes as the only tool to slow household loan growth, saying: “Banks’ mortgage rate hikes are not what the [financial] authorities wanted.”
Lee warned of additional regulatory steps unless household loan growth is kept in check. Industry observers said new policy measures could be reductions in loan-to-value and debt service ratios.
In immediate response to Lee’s comments, lending officials at Kookmin and other domestic banks such as Shinhan, Hana, Woori and NongHyup went to work on the weekend to draft measures to contain household loan growth.
“We’re perplexed that the financial authorities are blaming the rapid increase in household loans on the banks’ management failure,” said a deputy president of one of the leading Korean banks. “We’re reviewing every possible measure except for lending rate hikes.”
(Graphics by Dongbeom Yun)
The balance of mortgage loans, including loans used to pay a lump-sum payment as a rent deposit, swelled by 7.6 trillion won to 559.8 trillion won at South Korea’s top five banks in July alone. That marked the largest monthly expansion in the balace of the five lenders toegther.
The record looks set to be broken this month, however. This month, their combined mortgage loan balance increased by 6.1 trillion won to 565.9 trillion won as of August 22.
Soaring household debt and rising home prices pose headaches for the Bank of Korea, putting it in limbo on a rate decision despite moderating inflation.
By Bo-Hyung Kim
Kph21c@hankyung.com
Yeonhee Kim edited this article
