As Housing Prices Show Overheating Signs... Banks Tighten Loans Further

Financial Authorities Urge Banks to Strengthen Voluntary Management
NH Nonghyup, SC First, and Hana Bank Restrict Mortgage and Conditional Jeonse Loans for Multi-Homeowners
Woori Bank "Under Review"

Yonhap News

Recently, as housing prices have overheated in the Gangnam 3 districts (Gangnam, Seocho, Songpa) as well as in Seoul and the metropolitan area, banks are rushing to introduce measures to restrict mortgage loans for multi-homeowners. This comes after the government lifted the land transaction permission zones (LTPZ) in Jamsil, Samsung, Daechi, and Cheongdam, causing Seoul's housing prices to fluctuate, and subsequently expanded the LTPZ designation to Yongsan District. Financial authorities have also urged banks to respond voluntarily. As a result, the banking sector is shifting back to tightening household loan regulations that were eased earlier this year.

According to the financial sector on the 21st, Hana Bank announced that starting from the 27th, it will suspend new issuance of "mortgage loans for home purchases by existing homeowners" and "conditional jeonse deposit loans" exclusively in the Seoul area. This means that those owning one or more homes will no longer be able to obtain new mortgage loans when purchasing a property located in Seoul. Additionally, Hana Bank plans to halt new conditional jeonse deposit loans with collateral located in Seoul, including cases involving senior lien cancellations or reductions and conditional sales by multi-homeowners. A Hana Bank official explained, "This is a preemptive and effective policy measure to prevent gap investments (purchasing homes with jeonse deposits) and to protect genuine homebuyers amid the recent surge in housing prices and transaction volumes in Seoul."

NH Nonghyup Bank was the first to announce the suspension of conditional jeonse deposit loans exclusively in the Seoul area even before the government’s announcement. From that day, NH Nonghyup Bank decided not to issue loans that require simultaneous conditions such as transfer of ownership by the lessor, cancellation or reduction of senior mortgages, or cancellation of trust registration. This is interpreted as a preemptive measure to curb speculative demand such as gap investments, considering the recent rise in housing prices and increase in household loans centered around Seoul and the metropolitan area. Previously, NH Nonghyup Bank had suspended conditional jeonse deposit loans in September last year when household loans surged explosively, but resumed them in January this year.

SC First Bank also decided to suspend mortgage loans for living stabilization purposes for multi-homeowners starting from the 26th. Mortgage loans for living stabilization purposes will be suspended for those owning two or more homes, including suspension of refinancing loans and additional mortgage loans for multi-homeowners. Loans for eviction purposes, except for those aimed at returning jeonse deposits for reverse jeonse, will also be restricted. SC First Bank had no separate restrictions before but has now limited the target to those owning one or fewer homes.

Other commercial banks are also reportedly reviewing restrictions on mortgage loans for multi-homeowners following the government’s announcement. A Woori Bank official said, "We are reviewing measures to restrict mortgage loans for multi-homeowners in Seoul and the metropolitan area." Shinhan Bank and KB Kookmin Bank, having already refrained from issuing loans suspected to be for gap investment purposes, plan to focus more on strengthening monitoring rather than additional measures. A KB Kookmin Bank official stated, "We have been restricting loans to multi-homeowners regardless of the lifting of the land transaction permission system (LTP system) by operating two measures voluntarily requested by authorities: restrictions on mortgage loans for multi-homeowners and conditional jeonse deposit loan restrictions to prevent gap investments."

This is because, as housing prices overheated again due to the lifting of the LTP system, the government hastily expanded the designated zones to include Yongsan District to contain the situation. When designated as an LTPZ, apartment transactions require approval from the district mayor. Entering into land transaction contracts without approval can result in imprisonment for up to two years or fines amounting to 30% of the land price. In addition to restricting gap speculation, residential land must be used solely for actual residence for two years.

In line with this, the Financial Services Commission plans to closely monitor household loan trends by major regional units. It also emphasized the need for banks to strengthen voluntary management.

Kwon Dae-young, Secretary General of the Financial Services Commission, said, "For stable household loan management, it is necessary for the financial sector to proactively respond by assessing market conditions on their own," adding, "If voluntary measures by the financial sector are not properly implemented, we plan to enforce additional strong loan suppression policies."

Some voices criticize the government’s inconsistent policies, saying confusion is arising on the ground. This is due to the simultaneous demands for lifting and expanding the LTP system by Seoul City, managing household debt by financial authorities, and pressure to lower interest rates reflecting the base rate cuts.

A financial sector official lamented, "They use vague expressions like leaving it to the financial sector’s autonomy without clear guidelines, asking us to manage household debt and also make the interest rate cuts felt, so we don’t know which to prioritize."