Unlock the Door to Affordable Living: Navigating the Hidden Dangers of Low-Threshold Household Loans

As banks tighten their mortgage loans, especially for those with multiple homes, the growth rate of household debt appears to be slowing down significantly. The increase in household loans in September was one-third of the previous month.

Banks have decided to continue the current trend by not handling loans through loan brokers either. This is because loan brokers will provide a way to bypass the banks’ loan restrictions in order to continue to earn commission income.

There is still a ‘hidden threat’ that could increase household loan growth. As demand for loans remains high, concerns about a balloon effect in financial institutions that did not participate in the loan restriction continue. The increase in household loans centered on the five major banks that are restricting loans may slow down, but household loans in the entire financial sector will continue to increase.

Household loan growth rate cut by a third… Banks continue to be hit hard

According to the financial sector on the 26th, the household loan balance of the five major commercial banks, including KB Kookmin, Shinhan, Hana, and Woori Nonghyup, was tallied at around 728 trillion won as of the 20th. Compared to the end of August, this is an increase of around 2.7 trillion won in about three weeks (15 business days). If this month passes as it is, the monthly increase is estimated to be around 3 trillion won.

Compared to last month, when the balance of household loans from these banks increased by 9.6259 trillion won, this is a decrease of one third.

The reason why the growth rate of household loans has been ‘suddenly’ reduced is largely due to banks restricting the borrowers eligible for housing mortgage loans, which had been driving the growth of household loans. These banks decided not to handle new housing mortgage loans, living stability funds, or jeonse funds for those with multiple homes.

In addition, it is evaluated that the financial authorities’ strengthening of household loan regulations, such as the introduction of the second stage of the stress DSR (debt service ratio), has led to the suppression of the increase in household loans.

A bank official explained, “In August, the increase in loans was steep because it was before the introduction of additional lending regulations in September, and at the same time, there were expectations that banks would tighten lending,” adding, “It is not unusual for loan demand to increase right before the introduction of lending regulations.”

He continued, “In September, the increase rate decreased significantly as banks restricted the borrowers eligible for housing mortgage loans in addition to the introduction of regulations.” He explained, “In particular, since our country has a unique housing culture called jeonse, the loan restriction measure for multiple home owners was effective in suppressing the increase in jeonse loans for rental purposes as well as for the purpose of housing purchase funds.”

However, banks seem to think that household loans are not decreasing at a sufficient rate. This is because some banks decided not to handle loans through loan recruiters starting yesterday (the 25th).

Loan recruiters are ‘outsiders’ who have entered into a contract with a bank. They provide loan borrowers with all information about loans and receive a certain amount (up to 2%) of the loan amount as a commission from the bank when the loan is executed. In particular, housing mortgage loans with a large ‘per case’ amount are a key source of income for them. Banks also expect their activities because they can save on manpower needed for sales.

However, recently, as banks have stopped handling loans centered on housing mortgage loans, it has been confirmed that loan collectors are also likely to lose their profits, and attempts to circumvent the loan restriction policy have been detected. It has been felt that there is a need to restrict loans centered on loan collectors as well.

The official explained, “There have been voices coming out of some branches saying that loan recruiters are seeking means to evade the banks’ household loan curbs in order to close the loans,” and “We have decided to temporarily stop handling loans centered on loan recruiters, as we believe that this does not fit the banks’ current purpose.”

Hidden ‘ambush’

It is uncertain whether the recent slowdown in household debt growth will continue as it has, as it is not due to killing ‘demand’ but rather to tightening ‘supply.’

In particular, there is a high possibility that the lending interest rate, which has been holding back the growth of household loans, will go down. The US Federal Reserve (FED) has implemented a ‘big cut’ by lowering the base rate by 0.50% at once, and there is even talk of additional cuts throughout the year. The Bank of Korea is also likely to lower the base rate, so the general opinion in the banking industry is that the lending interest rate will only go down.

There are already signs of this being reflected in the market. According to the Korea Federation of Banks, the new handling amount KOPIS in August was 3.36%, the balance-based KOPIS was 3.67%, and the new balance-based KOPIS was 3.14%. All of these fell compared to the previous month. Since KOPIS is the standard for interest rates on housing mortgage loans and jeonse funds, a fall in KOPIS means that housing mortgage interest rates are falling.

Considering this situation, it is expected that loan demand will naturally move to areas with weaker lending regulations.

There are signs of a balloon effect in the secondary financial sector with relatively high interest rates. According to financial authorities, household loans from secondary financial institutions such as mutual finance, insurance, savings banks, and specialized financial companies increased by about 500 billion won in August compared to the previous month. This is the first time this year that the monthly increase/decrease in household loans from secondary financial institutions has shown an upward trend.

A savings bank official said, “Since the recent situation is not easy for savings banks, they are actually accelerating their operations rather than restricting loans,” adding, “In the case of secured loans, savings banks also have competitive interest rates, so many borrowers are seeking them out. There is also analysis that the monthly increase in household loans in the secondary financial sector may reach 1 trillion won throughout the year.”

The situation is similar for loans received by tenants such as jeonse. As major banks are currently suspending jeonse loans for unregistered tenants in addition to jeonse loans for existing homeowners, demand is moving to banks that have not suspended them. Currently, local banks and foreign banks that have not restricted loans to tenants are handling such loans as before. Among internet-only banks, Toss Bank is the only one that has not restricted jeonse loans.

An official from the lending department of a bank explained, “In the case of local banks, foreign banks, and Toss Bank, the increase or decrease in household loans by bank is below the target, so they have the capacity to provide a lot of loans.” He added, “In terms of protecting actual demanders, these banks are unlikely to join in the additional household loan squeeze throughout the year.”