Loan Freeze Becomes Reality... Genuine Borrowers Face Loan Drought Likely to Continue Into Next Year

Three of the Five Major Banks Exceed Annual Household Loan Growth Targets
Banks' Lending Capacity for Household Loans Expected to Shrink by 10% Next Year

There are growing concerns that the "October 15 Measures," which include exceeding annual household loan growth targets by major commercial banks and the strengthening of the Debt Service Ratio (DSR), will trigger a real "loan freeze" for genuine borrowers. This is because banks have almost no remaining lending capacity, and the implementation of these measures will significantly reduce the maximum loan amount available to borrowers. It is expected that next year, the limit for mortgage loans will be further reduced by about 10%, indicating that the "loan drought" will likely continue into the following year.

According to the financial sector on October 21, three out of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have already exceeded their annual household loan growth targets for this year. The household loan growth targets submitted by the five major banks to the financial authorities for this year are as follows: KB Kookmin Bank, 2.0061 trillion won; Shinhan Bank, 1.6375 trillion won; Hana Bank, 910.2 billion won; Woori Bank, 1.3952 trillion won; and NH Nonghyup Bank, 2.12 trillion won.

Among these, Shinhan Bank, Hana Bank, and Nonghyup Bank have already exhausted their annual limits. Kookmin Bank has reached about 95% of its target, and it is expected that its limit will be fully used up as early as next month. Woori Bank, by subdividing its limits by branch and loan brokerage firm, appears to have relatively more room left.

DSR Strengthening Deepens the 'Loan Cliff' for Genuine Borrowers... Concerns Over Funding Shortages

With banks already operating at tight lending capacity, the effective application of a "fourth-stage DSR" through the October 15 Measures is expected to further intensify the loan cliff experienced by genuine borrowers. Even if a loan application is submitted, the maximum loan amount is drastically reduced regardless of the borrower's repayment ability. Under these measures, the minimum stress DSR add-on rate has been raised from 1.5% to 3%, significantly reducing the amount that can be borrowed.

According to the Financial Services Commission, for a borrower with an annual income of 50 million won taking out a 30-year mortgage loan with equal principal and interest payments at an assumed interest rate of 4%, the maximum loan amount will decrease by at least 22 million won to as much as 43 million won, depending on the type of interest rate. The higher the income, the larger the decrease; for a borrower with an annual income of 100 million won, the limit will be reduced by 67 million to 86 million won, depending on the interest rate type. Effectively, a fourth-stage stress DSR has been introduced.

Even borrowers with sufficient repayment ability, as well as those without homes and genuine borrowers seeking to refinance at lower rates, are expected to face a loan cliff. Even first-time homebuyers will see their mortgage limits reduced to the same extent as other borrowers if they purchase high-priced homes.

According to the "Housing Market Stabilization Measures," the mortgage loan limits for homes in the Seoul metropolitan area and regulated regions are set as follows: 600 million won for homes priced at 1.5 billion won or less; 400 million won for homes priced over 1.5 billion won up to 2.5 billion won; and 200 million won for homes priced over 2.5 billion won.

Refinancing has also become virtually impossible. For homeowners in regulated areas who already have a mortgage and wish to switch to a bank offering lower interest rates, the Loan-to-Value (LTV) limit is now restricted to 40%, down from the previous 70%. This means that to benefit from a lower interest rate, a significant portion of the existing loan must be repaid first.

The loan freeze is expected to continue into next year. Starting in January next year, the minimum risk weight for mortgage loans will be raised from 15% to 20% under the October 15 Measures. As a result, banks' lending capacity is expected to decrease further. According to the financial authorities, this measure is expected to reduce the annual supply of new mortgage loans by banks by about 10%, or approximately 27 trillion won out of the total 275 trillion won.

An official from a major commercial bank commented, "Unlike last year, we strengthened household loan management from the beginning of this year, but as the loan limit was halved in the second half and a series of debt management measures were announced, last-minute demand surged, causing the limits to be exhausted early." The official added, "Despite banks' efforts to manage loans independently, this measure restricts even genuine borrowers with sufficient repayment ability and those without homes, leading to a funding crunch for those who truly need loans."

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