Ahead of Wedding Season and Spring Moving Period, Jeonse and Mortgage Loan Barriers Rise

Financial Supervisory Service Calls Banks Again... "Thorough Management" Ordered
Commercial Banks Tighten Loans Including Jeonse Loan Interest Rate Hikes

A loan counter at a bank in Seoul (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] Although the peak marriage and moving seasons are approaching, it is expected to become increasingly difficult to obtain loans from banks. This is because financial authorities have strongly ordered strict management not only of unsecured loans but also of jeonse loans and mortgage loans. Banks are swiftly raising interest rates on jeonse loans and mortgage loans as part of tightening lending.

According to financial authorities and the banking sector on the 23rd, the Financial Supervisory Service (FSS) individually summoned some commercial banks the previous afternoon to inspect the status of household loans, focusing on jeonse loans and mortgage loans, and urged them to pay close attention to managing these loans to prevent a rapid increase.

This is the second time the FSS has summoned individual banks to inspect household loans, following a meeting in January regarding unsecured loans.

A banking sector official said, "It is understood that this was to check how the management is proceeding in relation to the household loan management plan goals submitted at the beginning of the year."

Since the beginning of this year, unsecured loans have remained within the management scope and the growth trend has calmed, but jeonse loans and mortgage loans are increasing rapidly.

As of the 19th, the outstanding balance of jeonse loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 109.9 trillion won, an increase of 4.6879 trillion won (4.5%) compared to the end of last year (105.2127 trillion won).

The increase in jeonse loans is analyzed to be due to the impact of the three lease laws implemented in the second half of last year. The introduction of the right to request contract renewal and the rent ceiling system led to a shortage of jeonse properties, causing jeonse prices to soar. This naturally resulted in an increase in the outstanding balance of jeonse loans at banks.

During the same period, the outstanding balance of mortgage loans at the five major commercial banks also rose to 482.2838 trillion won, up 8.4989 trillion won (1.8%) from 473.7849 trillion won at the end of last year.

There is also analysis that the anticipation of the financial authorities' announcement of the 'Household Debt Management Plan' later this month influenced the increase in loans, as some borrowers tried to secure loans in advance. The core of the household debt management plan is the uniform application of the Debt Service Ratio (DSR) of 40% per borrower. Currently, banks only need to meet the average DSR of 40%, so some borrowers may have loans exceeding a 40% DSR. The plan is to gradually expand the application of the 40% DSR limit to individual borrowers to prevent this.

In response to the financial authorities' orders, major commercial banks are tightening jeonse and mortgage loans by reducing preferential interest rates.

Woori Bank decided to lower the preferential interest rate applied to 'Woori Jeonse Loan,' a loan secured by guarantees from the Korea Housing Finance Corporation and the Korea Housing & Urban Guarantee Corporation, from 0.4% per annum to 0.2% per annum starting from the 25th. This will apply to new applications, extensions, renewals, and condition changes (including financial assumption) approved after the implementation date.

Shinhan Bank also lowered the preferential interest rate on jeonse loans guaranteed by the Korea Housing Finance Corporation and the Korea Housing & Urban Guarantee Corporation by 0.2 percentage points starting from the 5th. Nonghyup Bank adjusted preferential interest rates on some housing-related loan products as well. The 0.2% per annum preferential interest rate clause applied to new customers for household mortgage loan products was removed, and the preferential interest rate applied when selecting short-term variable rates was reduced from 0.2% per annum to 0.1% per annum.

There are expectations in the banking sector that this trend will gradually spread. The one-year bank bond rate, which influences commercial bank interest rates, rose by 2.4 basis points this month compared to the end of last month, and the six-month bond rate increased by 5.6 basis points, showing a larger rise. A commercial bank official explained, "When funding costs rise, loan interest rates are also adjusted accordingly." He added, "Once the financial authorities announce the household debt management plan, a stricter individual DSR will be introduced, and various loans will be thoroughly converted to be based on individual income."

This content was produced with the assistance of AI translation services.