Will Yeongkkeuljok Breathe Easier... Lowered Loan Thresholds and Falling Interest Rates

Loan regulations tightened by commercial banks to manage household loans are loosening again toward the end of the year. This follows a slight drop in the COFIX rate, which serves as the benchmark for variable interest rates on mortgage loans, along with a lowering of lending thresholds by commercial banks. This is interpreted as a measure to prioritize securing high-quality borrowers for new loans in the coming year as the year-end approaches.

According to the financial sector on the 17th, the COFIX (Cost of Funds Index) rate based on new loan amounts for November, announced by the Korea Federation of Banks the previous day, was recorded at 3.35%, down 0.02 percentage points from October's 3.37%. The COFIX rate based on outstanding loan balances also fell by 0.05 percentage points from 3.58% to 3.53%. The COFIX rate is the benchmark for variable interest rates on mortgage loans, and following the rate cut, banks are expected to lower their mortgage loan variable rates starting from the 17th.

Accordingly, from this day, KB Kookmin Bank’s new mortgage loan variable interest rate (6-month) based on the COFIX rate will decrease by 0.02 percentage points from 4.76?6.16% to 4.74?6.14%. The same standard applies to jeonse deposit loans (guaranteed by the Korea Housing Finance Corporation), which will also be reduced from 4.51?5.91% to 4.49?5.89%. Woori Bank’s new mortgage loan variable interest rate (6-month) based on COFIX will similarly drop from 5.29?6.49% to 5.27?6.47%.

Not only have interest rates been lowered, but lending thresholds have also been eased, easing the loan crunch. Starting today, Shinhan Bank will increase the limit for mortgage loans for living stabilization purposes from the previous 100 million KRW to 200 million KRW. Additionally, it will resume handling mortgage insurance (MCI) for mortgage loans, which had been suspended, and will also accept loans through loan brokers again. Jeonse deposit loans for newly built properties without registration and for one-homeowners will also be resumed. Furthermore, the credit loan limit, which had been restricted to 100% of annual income, will be lifted, and non-face-to-face loan sales will resume. These measures will apply to loans executed from next year. However, the mortgage loan maturity limit (reduced from 40 years to 30 years) and the suspension of new mortgage loans for purchase purposes will remain unchanged. Conditional jeonse deposit loan handling will also continue to be suspended.

Woori Bank had also suspended non-face-to-face household loan sales but plans to lift this suspension starting from the 23rd. It has partially eased regulations by deciding to accept loan applications through loan brokers for next year’s loans.

Hana Bank resumed non-face-to-face mortgage and jeonse deposit loan sales for loans executed from the 12th of this month onward. Hana Bank also plans to apply these changes to loans executed next year. KB Kookmin Bank increased the limit for mortgage loans for living stabilization purposes from a maximum of 100 million KRW to 200 million KRW starting from the 15th of last month. It also decided to allow switching mortgage loans from other banks to KB Kookmin Bank mortgage loans.

A commercial bank official said, "Due to the nature of loan volume resetting at the start of the new year, loan regulations are generally eased from mid-December. With still high loan demand, this is a strategy to prioritize attracting high-quality borrowers as customers."

Some express concerns that the somewhat stabilized household debt could increase again due to the lowered lending thresholds. As commercial banks maintain high-intensity loan regulations, loan demand has shifted to secondary financial institutions, causing a balloon effect. According to the Financial Services Commission, the monthly increase in household loans from secondary financial institutions last month was 3.2 trillion KRW, marking the highest level in four years since November 2020.