Home-Backed Loans for Genuine Buyers to Ease Next Week; Household Debt Surpasses 2 Trillion Won in Q2

South Korea is set to ease restrictions on home-backed loans, offering relief to genuine homebuyers starting next week. The government's initiative focuses on making it easier for individuals to secure loans for down payments, mid-term payments, and final payments, aiming to inject liquidity into the housing market.

This policy shift comes as the government intends to double the target for household debt growth to 3% this year. Financial authorities are already in discussions with banks to adjust lending limits. The Financial Supervisory Service is scheduled to convene a meeting with financial institutions on August 19 to discuss the practicalities of adjusting household debt targets for each company.

The expansion of lending capacity is projected to add around 30 trillion won across the entire financial sector, including banks, mutual finance companies, insurance firms, and savings banks. The five major banks alone are expected to see an increase of approximately 7.5 trillion won in their mortgage lending capacity for the latter half of the year, based on pre-arranged collective loan agreements.

However, the move to expand lending comes amidst concerns about already record-high household debt, which is expected to surpass 2,000 trillion won by the end of the second quarter. Critics warn that increasing loan supply could exacerbate the burden of principal and interest payments for households, especially if interest rates rise further. This could also place additional pressure on the financial sector's soundness management.