As housing prices in Seoul show signs of overheating, financial authorities are urgently convening all banks to order them to tighten lending. Financial authorities also decided to conduct on-site inspections this month targeting certain banks that have significantly increased household loans, such as NH Nonghyup Bank and SC First Bank.
According to financial authorities and the financial sector on the 15th, the Financial Services Commission and the Financial Supervisory Service are holding a closed meeting on household debt with the vice presidents in charge of household loans from all banks on the 16th at the headquarters of the Financial Supervisory Service in Yeouido, Seoul. The recent surge in housing prices in the three districts of Gangnam (Gangnam, Seocho, and Songpa) and the Magok/Yongsan/Seongdong area is spreading to the northern districts and Gyeonggi Province, including Gwacheon and Bundang, which is interpreted as requiring urgent response due to the corresponding increase in household loans.
Financial authorities plan to issue 'warnings' to banks that are aggressively dealing with household loans or engaging in aggressive housing mortgage loan operations that exceed their monthly and quarterly target levels. Recently, some banks have extended the maturity of housing mortgage loans from 30 years to 40 years, thereby increasing loan limits, and concerns about misuse for 'gap speculation' have arisen, leading them to resume conditional rental loans that were previously restricted only in the Seoul area.
A financial authorities official noted, "The maturity of housing loans, as well as measures regarding multiple homeowners and gap investments, vary greatly between banks, so it is necessary to tighten lending practices," adding that "monthly and quarterly benchmarks must be adhered to."
The Financial Supervisory Service plans to conduct on-site inspections this month at banks such as NH Nonghyup Bank and SC First Bank, which have seen a recent surge in household loans, and also expects to receive separate detailed management plans. The Financial Supervisory Service will also conduct focused checks to see if there are cases circumventing the total debt repayment ratio (DSR) regulations during this process.
The current DSR regulation mandates that the repayment of loans due each year cannot exceed 40% of annual income, and it has been decided to confirm whether there is a tendency to excessively recognize income considering future income increases, among other things. Cases that do not adhere to the high DSR target ratio managed by the authorities will also be subject to inspection.
Financial authorities intend to ensure that the share of high DSR loans exceeding 70% and 90% in commercial banks is managed within 5% and 3% of total loans, respectively, which means they will check whether these target ratios are being properly maintained.
If the increase in household loans does not taper off, financial authorities are also considering measures to further lower the rental loan guarantee ratio to 70-80% only in the metropolitan area and to increase the capital risk weight for household mortgage loans in the banking sector.
There are calls for a comprehensive government response to begin with the strengthening of loan regulations in the banking sector to quell the real estate 'bull market.' Many interpret that this current strength in the real estate market is the result of a combination of factors, including interest rate cuts, a lack of housing supply, and expectations regarding the new government’s stance that 'it will not control housing prices through taxes.' According to the Korea Real Estate Board, the apartment sales price in Seoul increased by 0.26% last week (as of the 9th), representing the highest rise since August last year (0.26% in the fourth week).
The government is also busy monitoring market conditions closely. On the 12th, the government held a meeting of the 'real estate market inspection task force' with the participation of the Ministry of Economy and Finance, Ministry of Land, Infrastructure and Transport, Financial Services Commission, and Financial Supervisory Service, stating that "the situation in the Seoul real estate market is severe" and that it would review all available policy measures across ministries.