South Korean Banks Raise Mortgage Thresholds for Household Debt Management

South Korean banks are raising the bar for home-backed loans as they move to manage household debt. KB Kookmin Bank announced on June 23 that it will limit mortgage insurance (MCG/MCI) on June 26, affecting both in-person and online applications. This insurance is typically taken out with a mortgage. Without it, loan amounts are reduced, with limits cut by 55 million won in Seoul and 48 million won in Gyeonggi Province. For homes under 1.5 billion won, the maximum loan of 600 million won will be reduced by about 10%.

KB Kookmin Bank is also halting loans meant to repay other banks' mortgages, effectively stopping refinancing demand. Additionally, the bank has reduced the application limit for loan brokerages, reverting to its original limit after a temporary increase this year. NH Nonghyup Bank began restricting MCG/MCI in May and has already stopped loans through brokers as its household debt growth has exceeded its target.

Woori Bank will end preferential rates for its flagship mortgage product, "Woori Apartment Loan," at the end of June. Starting next month, the interest rate for a 5-year variable-rate mortgage will increase by 1.1 percentage points. These actions reflect stricter annual household debt management targets from the Financial Services Commission, which set a lower growth rate of 1.5% for this year compared to 1.7% last year. Despite these targets, loan demand has increased, partly because demand shifted to commercial banks after secondary financial institutions like Saemaul Undong and Nonghyup Credit Union reduced their lending limits early in the year. Expectations of rising housing prices are also fueling loan demand.

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