What Should I Do with My Moving Boxes?”…Homebuyers Struggle with Loan Restrictions

Last month, household loans surged by 10 trillion won, with interest rate hikes and loan limit reductions failing to control the situation. 

Last month, household loans surged by 10 trillion won, with interest rate hikes and loan limit reductions failing to control the situation. As demand for credit loans spiked, the government began considering measures to curb the balloon effect, including reducing loan limits to annual income levels. Financial institutions are tightening mortgage lending, even restricting loans to first-time homebuyers only.

On September 3rd, NH Nonghyup Bank announced that starting from the 6th, it would temporarily suspend housing mortgage loans for those with two or more properties for the purchase of homes in the metropolitan area. Additionally, the bank will limit the loan amount for living stability funds to 100 million won for multi-property owners. To prevent speculative investments, conditional jeonse loans will also be temporarily halted, and mortgage insurance (MCI/MCG) will be restricted. Following the four major banks (KB Kookmin, Shinhan, Hana, and Woori), NH Nonghyup Bank has joined the movement to restrict lending.

Financial authorities are now seeking additional measures to manage household debt. Despite previous interventions in the financial market amid controversy over government control, the surging loan demand remains unchecked. As of the end of last month, the household loan balance of the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) had increased by 9.63 trillion won to 725.36 trillion won, marking the largest increase ever. The real estate price hike, particularly in Seoul apartments, and last-minute demand for mortgages before the implementation of the DSR (Debt Service Ratio) 2.0 in September have driven this surge. The mortgage loans of the five major banks increased by 8.91 trillion won last month, the largest increase on record.

In response, financial authorities are considering measures such as reducing credit loan limits to a percentage of annual income, lowering the guarantee ratio for jeonse loans from 100% to below 80%, and expanding the application of DSR. These measures aim to strengthen bank evaluations and potentially reduce loan amounts.

On the other hand, the increased scrutiny of loan applications and the possibility of additional regulations have led to confusion among borrowers. With the implementation of DSR 2.0 starting this month, many who had already signed purchase contracts or planned moves are worried about the possibility of loans being denied.

Overall, banks report a decrease in inquiries and applications for new mortgages. This is due to many having completed their purchase contracts last month to avoid the stricter regulations. For instance, an A bank branch has seen almost no loan inquiries since the tightening of regulations in September.

However, those who had applied for loans before are experiencing confusion. Rising interest rates and shorter loan periods have reduced limits, and the increase in ineligible loan products has led to growing dissatisfaction among consumers.

For example, at Shinhan Bank, the lower end of the 5-year fixed-rate mortgage was 2.84% until early July. By September 3rd, this rate had increased to 4.12%. For a 5-year fixed-rate, 40-year repayment, non-deferred, equal principal and interest mortgage at 2.84%, the monthly payment would be about 1.05 million won. However, at 4.12%, the payment would rise to approximately 1.27 million won, an increase of 220,000 won.

As interest rates vary according to bank policies, the phenomenon of ‘bank-hopping’ has emerged, with individuals checking rates and limits at multiple banks. A B Bank representative noted that people in areas with many newly constructed apartments are visiting various banks to compare rates and limits.

A C Bank representative mentioned that borrowers are expressing significant dissatisfaction with the tightening policies. Some clients owning properties in non-regulated areas who wish to purchase apartments in the metropolitan area are facing obstacles and expressing their frustration.

The ongoing tightening of loan regulations is causing significant stress for homebuyers and those planning to move. With rising interest rates, stricter loan conditions, and increased financial scrutiny, borrowers are facing greater challenges in securing mortgages. As the situation continues to evolve, both borrowers and financial institutions are grappling with the impact of these regulatory changes.