[Reporter’s Notebook] Government Restricts Refinancing Loans While Claiming to Manage Total Lending

Refinancing Blocked by June 27 Regulations
Market Confusion Grows Under Excessive Controls
Sustainability Must Be Reviewed Before Additional Restrictions

The "6·27 loan regulations," introduced to curb excessive "Yeongkkeul" (borrowing to the limit), have entered their third week of implementation, and the market atmosphere has changed. The overheated real estate market in Seoul has cooled down, and the pace of household loan growth has slowed. Although there is still a possibility that housing prices could be stimulated again at any time, if this trend continues, household lending is expected to stabilize again after a time lag. The President publicly expressed satisfaction, stating, "We are seeing significant results."

However, as these ultra-strict regulations persist, the side effects of uniform restrictions are gradually becoming apparent. The government has placed not only new mortgage loans but also refinancing loans under the same regulatory framework, rendering the refinancing loan system virtually meaningless. Due to the regulations, in the Seoul metropolitan area, borrowers who purchased a home more than three months ago and have an outstanding mortgage balance of over 100 million KRW cannot refinance their loans with another bank. Considering that most homebuyers take out loans exceeding 100 million KRW and that refinancing is only possible after six months, a significant number of borrowers are effectively excluded from refinancing altogether.

Most bank mortgage products apply a five-year fixed interest rate, after which the rate switches to a variable rate every three or six months. For those concerned about interest burden and stability, refinancing was a logical step. However, with the path to refinancing blocked, rational financial choices for genuine demanders have been denied. Despite the base rate being in a downward phase, the total household loan cap has prevented lending rates from falling, resulting in a minimal sense of rate relief. Now, even the opportunity to reduce interest burdens has disappeared.

Refinancing loans involve repaying existing loans and borrowing the same amount again with only the interest rate or maturity conditions changed, so they do not affect the total loan volume. Nevertheless, it is difficult to understand why the government has imposed particularly strict conditions on refinancing loans. This contradicts the government's logic that household debt must be controlled to avoid constraining consumption. As it becomes harder to choose lower rates, the interest burden for existing mortgage holders remains the same or even increases, further limiting their ability to spend. It is contradictory for the government to spend public funds to stimulate domestic demand by providing an average subsidy of 250,000 KRW, while maintaining the burden of loan interest.

No one denies the need to reduce excessive household debt. To achieve this, expectations of rising home prices must be curbed, and the government has chosen an extreme strategy of blocking all stimuli to reach its goal. Including refinancing loans in the total loan cap, even though the outstanding balance does not change, is probably the easiest way for the government to manage the situation.

Despite confusion on the ground, financial authorities have stated that they have no plans to change the regulations. In fact, they are considering additional restrictions to maintain the current atmosphere of suppressed demand. The Bank of Korea has also argued that such minor side effects must be tolerated and has called for further regulation. However, before introducing additional restrictions, it is necessary to first consider whether the current level of excessive control is appropriate and sustainable. For now, this strategy and approach may seem simple and effective, but side effects will inevitably arise. The greater the gap between policy objectives and market realities, the bigger the boomerang effect may be. Extreme regulations have a short shelf life.