Top 5 Banks Exceed Household Loan Targets by 2 Trillion Won, Is a Mortgage Freeze Coming in H2?

South Korea's top five major commercial banks have exceeded their annual household loan growth targets by over 2 trillion won prematurely, signaling a severe 'loan freeze' for the second half of the year. In alignment with the financial authorities' strict stance on managing household debt, reductions in mortgage limits and interest rate hikes are materializing.

Background of Exceeding Loan Targets Prematurely

According to recent data, the household loan increments at the top 5 banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have already surpassed their self-imposed annual management targets. The excess amount alone is estimated at 2 trillion won. The key reasons for this rapid surge in household loans include:

• Recovery in Housing Purchase Sentiment: Increasing real estate transaction volumes, especially in the Seoul metropolitan area, and the spread of the perception that housing prices have bottomed out reignited the 'FOMO' buying demand.
• Pre-reflection of Rate Cut Expectations: Expectations of a benchmark interest rate cut in the second half of the year caused market rates to fall preemptively, stimulating loan demand.
• Last-Minute Rush Before Regulations: Borrowers rushed to secure funds before additional lending regulations, such as the tightened Stress DSR (Debt Service Ratio), take full effect.

Impact on H2 Loan Market: Is a 'Loan Freeze' Becoming a Reality?

Having reached their targets early, banks have no choice but to severely restrict loan issuances for the remainder of the year. Consequently, consumers will face significantly higher hurdles to borrow money.

• Raising Spread Rates and Reducing Prime Rates: To suppress loan demand, banks are artificially increasing the spread rates on mortgages and jeonse (deposit-based lease) loans while drastically cutting prime rate benefits.
• Possibility of Suspending New Loans: If the situation worsens, some banks might resort to extreme measures, such as temporarily suspending new mortgage loans for multiple homeowners or halting non-face-to-face loan applications until the end of the year.
• Emergency for Actual End-Users: Ahead of the autumn moving season, actual end-users needing loans for home purchases or jeonse deposit returns may face significant disruptions in their financial planning.

Frequently Asked Questions (FAQ)

Will it be completely impossible to get a mortgage in the second half of the year?

While loans will still be available at banks with some remaining capacity in their management limits, the screening process will become much stricter, and interest rate conditions will be less favorable. Since some banks may temporarily close new applications, it's crucial to check conditions across multiple financial institutions, not just your primary bank.

Will the interest rates for existing borrowers go up immediately?

For existing borrowers using floating-rate products, the interest rate is adjusted at each renewal period based on changes in the benchmark rate (e.g., COFIX). Depending on recent market rate trends and the banks' spread rate policies, the interest burden may increase. Fixed-rate borrowers will experience no change in rates until maturity.