"Urgent Need for Cash"... Rapid Increase in Loans Secured by Dormant Housing Subscription Savings (Comprehensive)

2.1043 Trillion KRW in Mortgage Loans Secured by Housing Subscription Savings at 5 Major Banks
Over 18% Increase Compared to One Year Ago

[Asia Economy Reporter Park Sun-mi] Choi Jun-hyuk (45, pseudonym), whose business suffered due to the novel coronavirus disease (COVID-19) situation and whose pockets have become thin, needed urgent funds and tried to get a personal loan. However, he decided to utilize the money dormant in his Housing Subscription Savings account and applied for a loan. The applied loan interest rate was 1.91% per annum. With about 14.42 million KRW in the account, he was eligible for a loan up to the limit of 13.6 million KRW.

The scale of Housing Subscription Savings secured loans is rapidly increasing. This is interpreted as a result of more people needing urgent funds due to the prolonged COVID-19 crisis, as well as a social atmosphere that encourages investment even by 'debt investment (debt-fueled investment)' and 'Eongkkeul (pulling together all resources including one's soul)'.

According to the banking sector on the 12th, the balance of Housing Subscription Savings secured loans at five major commercial banks?KB Kookmin, NH Nonghyup, Shinhan, Woori, and Hana?stood at 2.1043 trillion KRW as of the end of October. Maintaining a rapid monthly increase, this is more than an 18% rise compared to 1.7732 trillion KRW a year ago.

Housing Subscription Savings secured loans fall under deposit-secured loans. Borrowers can get 90-95% of their saved money as a loan, and since only the principal is used as collateral, taking out a loan does not affect the subscription function. With the explosive increase in Housing Subscription Savings subscribers, it has become difficult to win new apartment subscriptions without a high score. As a result, the phenomenon of postponing account cancellation and only withdrawing saved money for use is increasing.

Housing Subscription Savings Subscribers Surpass 25 Million
More Than Half of the Total Population 'Subscribed'

According to the Korea Real Estate Agency's Subscription Home subscription account status, as of the end of September, the number of Housing Subscription Savings subscribers nationwide reached 25,127,182, surpassing 25 million for the first time, which is half of South Korea's total population.

Subscribing to Housing Subscription Savings and receiving a new home is perceived as an opportunity to secure a home at a price lower than the surrounding market price, leading to a continuous increase in subscribers. If the 'debt investment' and 'Eongkkeul' atmosphere continues, the scale of Housing Subscription Savings secured loans is also expected to increase.

Unlike the past when rates were unreasonably high, the interest rates now are not significantly different from general deposit-secured loans and personal loans, which is one reason for the increased utilization. In 2014, the interest rate on Housing Subscription Savings secured loans in the banking sector was around 4-5%, which was criticized for being more than 1 percentage point higher than the general deposit-secured loan rate of about 3% per annum at that time.

General Deposit-Secured Loans and Personal Loans Have Similar Interest Rates
Banks Apply Rates Around 1.9~2.3%

However, currently, the interest rate calculation method for Housing Subscription Savings secured loans has changed. KB Kookmin Bank and Woori Bank apply a method of adding a 1.2~1.3% margin to the COFIX rate. NH Nonghyup Bank sets the loan interest rate by adding 1.30% to its internal base rate (0.89%), Shinhan Bank adds 1.25% to the 91-day CD rate, and Hana Bank adds 1.20~1.70% to the 1-year financial bond rate.

The five major banks apply loan interest rates at around 1.9~2.3% per annum, which is similar to personal loan interest rates formed at 2~2.5% for credit grade 1. For general deposit-secured loans, the loan interest rate is set by adding 1.0%~1.25% to the deposit interest rate, and considering that current bank deposit interest rates are around 0.5~1%, the levels are similar.

An official from a bank said, "Financial authorities, concerned about excessive debt growth, have imposed measures to limit the increase in personal loans across the banking sector to around 2 trillion KRW per month. As a result, loan demand from customers needing urgent funds is likely to expand from personal loans to deposit-secured loans, especially Housing Subscription Savings secured loans, for the time being." The official also added, "There is also a perception that taking out a loan secured by saved money is more advantageous for credit management than taking out a personal loan, which may increase demand from people needing urgent funds."