South Korea's new household loans drop in Q2 amid tighter lending

New household loans in South Korea saw a decline in the second quarter, with the average new mortgage loan amount dropping significantly. The Bank of Korea reported that the average new loan taken out by households was 34.14 million won, a decrease of 1.28 million won from the previous quarter. Specifically, new mortgage loans averaged 208.29 million won, down 21.1 million won from the first quarter.

This reduction is attributed to stricter lending management by financial institutions, according to the central bank. Despite the decrease in newly issued loans, the total outstanding balance of household debt per borrower rose by 500,000 won to 97.9 million won by the end of the second quarter. Outstanding mortgage debt also increased by 1.87 million won to 161.93 million won.

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It appears to be due to the strengthening of lending management by financial institutions.

Min Sook-hong, head of the Bank of Korea's micro-statistics team for household debt, explained that the increase in outstanding balances can occur even with a decrease in new loan amounts if repayment volumes shrink, or if existing borrowers take out additional loans or refinance. This can lead to divergent movements between new loan figures and outstanding debt.

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Existing loan holders' additional or refinancing loans are also captured as new loans, and if the repayment amount decreases, the balance can increase, moving in a different direction.

Analyzing new loan trends by age group, the decline was led by those in their 40s and 30s. However, borrowers in their 20s saw an increase in new loans. This trend was also observed in mortgage loans, with significant decreases in new issuances for those in their 40s, 30s, and 50s, while the 20s age group experienced an increase. Min suggested that the rise in loans for younger borrowers might be linked to first-time home purchases and loans for more affordable homes in the Seoul metropolitan area, which face fewer regulations.

Regionally, new household loan amounts decreased in the Seoul metropolitan area and the southeastern region, while the Honam region saw an increase, reportedly due to a rise in loans related to new apartment sales in cities like Jeonju and Gwangju. The decrease was more pronounced in non-banking institutions, with mortgage and jeonse (lump-sum deposit) loans showing the largest reductions. In the second quarter, borrowers in their 30s accounted for the largest share of new household loans (32.7%), followed by the Seoul metropolitan area (59.4%) in terms of region, banking institutions (58.3%) in terms of sector, and mortgage loans (41.0%) in terms of product.

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It seems to be because loans for areas with less regulation, such as first-time home purchases and relatively inexpensive homes in the Seoul metropolitan area, are mainly associated with the 20s.