[1mm Financial Talk] Banks Tighten and Loosen Loans... The Inside Story

Ahead of Phase 3 DSR Implementation in July
Some Banks Step Up Last-Minute Lending
Others Tighten Requirements Due to Limited Lending Capacity

Due to the financial authorities' ongoing efforts to manage household debt, such as the implementation of the third phase of the Debt Service Ratio (DSR) on July 1, banks' mortgage loan policies are becoming increasingly inconsistent. Some banks are tightening lending by raising additional interest rates and reducing loan limits, while others are easing access by extending loan maturities. There are growing concerns that these fluctuating policies are causing confusion among borrowers.

According to the financial sector on June 5, NH NongHyup Bank will temporarily restrict mortgage loans for home purchase to borrowers who already own at least one home in the Seoul metropolitan area starting June 9. This measure strengthens the bank's previous policy, which since September last year had limited loans to borrowers with two or more homes in the metropolitan area. Prior to this, NH NongHyup Bank had temporarily suspended applications for mortgage loans through loan brokers as of May 29, and had also suspended in-person jeonse loan refinancing as of June 2. It is known that about half of new mortgage loans in the banking sector are processed through loan brokers. A representative from NH NongHyup Bank explained, "This is a measure to stably manage the total volume of household loans."

KB Kookmin Bank, after an internal meeting, decided to raise the interest rate on the periodic and mixed-type products of its non-face-to-face mortgage loan product, 'KB Star Apartment Mortgage Loan,' by 0.17 percentage points to an annual rate of 3.87% starting June 4. ·Additionally, the daily application limit for non-face-to-face mortgage loans will be significantly increased from 150 to 500 cases. KB Kookmin Bank explained that these measures are intended to manage household loan demand.

On the other hand, some banks are lowering the threshold for mortgage loans by increasing loan limits or extending maturities. Starting June 4, Shinhan Bank is extending the maximum maturity for mortgage loans from 30 years to 40 years, regardless of region or purpose of funds. Extending the loan maturity has a similar effect to increasing the loan limit, especially in the context of DSR regulations. Previously, Hana Bank increased the limit for its non-face-to-face 'Hana OneQ Apartment Loan,' available through the mobile application 'Hana OneQ,' from 500 million KRW to 1 billion KRW as of May 29. As a result, in non-regulated areas, first-time homebuyers can now borrow up to 70% of the Loan-to-Value (LTV) ratio for homes priced at 1.5 billion KRW. The loan limit for the 'Hana OneQ Mortgage Loan' was also raised from 500 million KRW to 700 million KRW. This reverses the reduction implemented in February, restoring the loan limits after about four months. A Hana Bank representative stated, "This is a restoration of the loan limits that were temporarily reduced in February to ensure stable management of household loans."

The reason major banks are operating divergent mortgage loan policies is due to differences in their lending capacity. With the third phase of the DSR about to take effect and a surge in last-minute demand, banks with more lending capacity are seeking to capture this demand, while banks with higher existing loan volumes are tightening their conditions to prevent further concentration of loan demand.

As of the end of May, the outstanding household loans at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup) stood at 748.0812 trillion KRW, an increase of 4.9964 trillion KRW from the previous month (743.0848 trillion KRW). This marks the second consecutive month of increases in the 4 trillion KRW range, following April's 4.5337 trillion KRW, and represents the largest increase in eight months since September last year, when household loans surged by 5.6029 trillion KRW.