South Korea's mortgage market faces 'shutdown' fears as banks tighten lending

South Korean banks are increasingly restricting household loans, sparking fears of a widespread "mortgage shutdown." Major commercial banks are raising lending thresholds as they intensify efforts to manage overall loan volumes. Hana Bank has temporarily halted new non-face-to-face mortgage applications and will soon stop new variable-rate mortgage lending. It will also limit the maximum amount for overdraft accounts to 50 million won.

Other banks are also tightening their grip on household credit. Shinhan Bank has temporarily suspended new mortgage applications through loan brokers. KB Kookmin Bank has reduced the maximum loan limit for home purchases from 600 million to 300 million won and increased interest rates on various household loans. Woori Bank has significantly cut its monthly mortgage lending limit per branch, and NH Nonghyup Bank has imposed restrictions on loan broker channels. IBK Industrial Bank of Korea has stopped offering variable-rate mortgages.

The tightening credit market is creating difficulties for genuine homebuyers needing to secure funds for their down payments. Online communities are filled with complaints from individuals facing challenges in arranging their final payments due to loan restrictions and exhausted quotas. This has led to a surge in demand for internet-only banks, with some experiencing rapid sell-outs shortly after opening for applications.

Amidst these restrictions, there's a glimmer of hope for those needing down payment loans for newly built apartments. Financial authorities are reportedly exploring targeted support measures to address the issue of blocked down payment loans for new apartment residents. This follows a public discussion where a resident expressed difficulties with loan restrictions, prompting a presidential directive for solutions. In response, the five major commercial banks have allocated a total of 500 billion won in down payment loan limits for a specific new apartment complex in Suwon.

However, concerns about fairness are emerging. Providing exceptions for down payment loans for certain new apartment complexes could create disparities compared to residents of other new developments or individual home buyers. The financial authorities are assessing the net increase in down payment loans planned for the latter half of the year. Key questions remain whether collective loans for housing, including relocation, mid-term, and final payments, will be excluded from the overall loan volume regulations or granted separate limits. The government has stated its intention to maintain the overall loan volume control policy while providing targeted support for those facing difficulties, such as first-time buyers and young individuals.

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We are maintaining the overall loan volume control policy, but we plan to resolve difficulties faced by essential buyers, the low-income, and young people through targeted support.