August 30, 2021 09:02
Banks have abruptly tightened lending rules or halted home loans under pressure from financial authorities, triggering panic among people who were hoping to lease or buy apartments once their rental contracts expire this year.
Since Aug. 20, loan applications at the five top banks -- KB Kookmin, KEB Hana, NH Nonghyup, Shinhan and Woori -- have shot up six-fold. According to industry insiders, credit loans increased by a whopping W2.88 trillion from Aug. 20 to 26, up 6.2-fold compared to the previous week (US$1=W1,170).
Financial authorities told banks to curb lending after Korea's household debt surpassed W1,800 trillion. Banks either froze housing loans altogether or imposed tougher restrictions.
"We saw a surge in new loan applications from customers whose leases are set to expire later this year or who need to cover wedding or other expenses," a bank staffer said.
The government targeted cheap loans as one of the main culprits behind Korea's real estate price bubble and has warned of additional measures. Financial authorities called on banks to keep the increase in household loans at five to six percent a year and ordered commercial lenders to cap loans within the annual salaries of borrowers.
KEB Hana and NH Nonghyup, which have higher household loan growth than other lenders, have already started curbing them, while KB Kookmin, Shinhan and Woori will take steps next month. Internet-only Kakao Bank has also decided to cap loans.
Financial authorities believe the economy is in trouble if the record household debt is not brought under control as interest rates rise. But critics say the government is making the public pay for its policy mistakes, which caused apartment prices to go through the roof.
Koh Jong-wan of the Korea Asset Management Institute said, "Government policies need to be predictable and stable, but financial authorities simply threw up their hands, and now young people are unable to buy homes."
The Bank of Korea raised the base interest rate by a quarter percentage point to 0.75 percent last week, and another hike is expected soon. Home loans offered by the top five lenders at an interest rate of 2.72 to 4.13 percent are highly likely to rise as early as October.
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