Tough New Measures: Homeowners in the Capital Area Face Lending Restrictions

Starting September 9, Woori Bank will halt mortgage and jeonse (rental deposit) loans for homeowners looking to buy additional properties in the Seoul metropolitan area.

Starting September 9, Woori Bank will halt mortgage and jeonse (rental deposit) loans for homeowners looking to buy additional properties in the Seoul metropolitan area. This move represents one of the most stringent regulatory measures seen to date. The bank is also reducing the maximum mortgage term to 30 years. With similar actions anticipated from other major banks, including KB Kookmin, Shinhan, Hana, and NH Nonghyup, as well as online banks, the lending landscape is tightening significantly.

Starting September 9, Woori Bank will implement a new policy that denies additional property loans to current homeowners seeking to buy in the Seoul metropolitan area. Homeowners will also be ineligible for jeonse loans. This measure is considered the most severe regulatory action by banks so far. Additionally, the maximum term for mortgage loans will be reduced from 40 years to 30 years.

Following Woori Bank's lead, KB Kookmin and Shinhan Banks are also tightening household debt management policies. It is expected that Hana Bank, NH Nonghyup, and online banks like Kakao Bank, K-Bank, and Toss Bank will follow suit. While these measures are intended to manage household debt and curb speculative demand, there are concerns about the adverse effects on genuine homebuyers who may face a lending crunch.

As of October 1, Woori Bank will focus its household debt efficiency measures on genuine homebuyers, offering jeonse loans only to those without any property. Exceptions will be made for those renewing jeonse contracts or who signed contracts and paid deposits before September 8. For multi-homeowners, mortgage loans for additional properties in the capital area will be halted. However, loans for temporary needs due to housing transitions and purchases by non-homeowners will continue without interruption to minimize the impact on genuine buyers.

The bank will also reduce the maximum mortgage term from 40 years to 30 years and will adjust loan limits by increasing the Debt Service Ratio (DSR). For example, a borrower with an annual income of 50 million won will see their loan limit reduced from 370 million won to 325 million won due to the higher DSR.

Major banks have already announced household loan restrictions. The top five banks—KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup—have stopped offering Plus Mortgage Insurance (MCI/MCG) products. This insurance, which accompanies mortgage loans, helps reduce loan limits if not available. Without MCI/MCG, loan limits are decreased by varying amounts depending on the region.

KB Kookmin Bank will limit jeonse loan amounts to the range of the deposit increase starting from October 3. Conditional jeonse loans, used for speculative investments, will be temporarily halted. Prepayment penalties will be waived for borrowers repaying real estate-backed loans with their own funds, excluding re-loans or refinancing from other banks.

Woori Bank will also restrict MCI/MCG subscriptions and suspend conditional jeonse loans starting October 2. The limit for lifestyle stability loans for multi-homeowners will be reduced from 200 million won to 100 million won, and monthly loan limits for brokerage firms will be managed around 200 billion won.

Hana Bank will cap lifestyle stability loans for multi-homeowners to 100 million won annually from October 3. Shinhan Bank stopped offering MCI/MCG products on August 26 and will no longer provide conditional jeonse loans. NH Nonghyup has also ceased MCI/MCG subscriptions.

Starting today, a stricter version of the DSR regulation will be applied. This stress DSR accounts for potential increases in repayment burdens due to rising interest rates. The new stress DSR will add an additional interest rate to calculate loan limits. For instance, a borrower with a 60 million won annual income seeking a 30-year variable rate loan will see their limit reduced significantly under the new stress DSR rules.

As banks tighten their lending policies and reduce mortgage limits, potential borrowers may face significant challenges in securing loans. While these measures aim to control household debt and speculative activity, they may also impact genuine buyers and create a more restrictive lending environment.