Financial Supervisory Service Orders 'Thorough Management,' Banks Tighten Jeonse and Mortgage Loans (Comprehensive)

Jeonse Loans Up 4.5% Compared to End of Last Year... Mortgage Loans Increase by 1.8%

Rising Barriers to Jeonse and Mortgage Loans Ahead of Wedding and Moving Seasons

[Asia Economy Reporter Lee Kwang-ho] As household loans surge ahead of the spring moving season and wedding season, it is expected to become even more difficult for genuine homebuyers to borrow money. Financial authorities have summoned commercial banks to strictly manage jeonse loans and mortgage loans, which could raise the barriers further. Banks, already tightening loans due to interest rate hikes and reduced preferential rates, may accelerate their pace of tightening.

According to financial authorities and the banking sector on the 23rd, the Financial Supervisory Service (FSS) individually summoned some commercial banks yesterday afternoon and ordered them to pay close attention to the status and management of household loans, focusing on jeonse loans and mortgage loans.

This is the second time this year that the FSS has summoned individual banks to inspect household loans, following a credit loan inspection meeting in January.

A bank official said, "It is understood that the meeting was to check how the household loan management targets submitted at the beginning of the year are being managed."

In fact, jeonse loans and mortgage loans have been rapidly increasing this year. As of the 19th, the outstanding balance of jeonse loans at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 109.9 trillion won. This is an increase of 4.6879 trillion won (4.5%) compared to the end of last year (105.2127 trillion won).

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

The surge in jeonse loans is interpreted as a result of increased jeonse demand during the spring moving season and soaring jeonse prices due to the implementation of the Lease 3 Act since the second half of last year.

Additionally, the banking sector analyzes that the anticipation of the financial authorities' announcement of a 'household debt management plan' this month, which includes the uniform application of a 40% Debt Service Ratio (DSR) per borrower, also contributed to the surge in demand. The fear that loans might be blocked after the regulation led to a 'last-minute rush' mentality to secure loans in advance.

Commercial Banks Reduce Preferential Interest Rates... Slowing Down Loan Tightening?

Commercial banks, which have tightened lending by raising interest rates on jeonse funds and mortgage loans since early this year, are now slowing down by further 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 Housing and Urban Guarantee Corporation (HUG), from the current 0.4% per annum to 0.2% per annum starting from the 25th. This will apply to new applications, extensions, renewals, and condition changes approved after the implementation date.

Shinhan Bank also lowered the preferential interest rate on jeonse loans guaranteed by the Korea Housing Finance Corporation and HUG by 0.2 percentage points starting from the 5th. Nonghyup Bank removed the 0.2% per annum preferential interest rate clause that applied to new customers of household mortgage loan products. Additionally, the preferential interest rate applied when choosing short-term variable rates was reduced from 0.2% per annum to 0.1% per annum.

There is a prevailing view that such moves by banks are likely to spread gradually. 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, while the six-month bond rate increased by 5.6 basis points, showing a larger rise.

A commercial bank official said, "When funding costs rise, loan interest rates are also adjusted," adding, "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."

Another bank official said, "When financial authorities order loan management, banks have no choice but to find areas where they can reduce lending even slightly," adding, "It will not be easy to secure funds for home purchases or jeonse deposits."

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