Household loans in January returned to growth after a month, while President Lee Jae-myung (이재명) raised a “fairness” issue over the practice of extending loan maturities for multi-homeowners. Financial authorities immediately began inspecting the situation, and their lending management stance toward multi-homeowners is expected to tighten further. This year’s household loan management plan, due after the Lunar New Year holiday, is increasingly likely to include tougher volume caps and supplementary detailed rules.

On Feb. 19, the financial sector said household loans across the entire financial industry increased by 1.4 trillion won last month, switching back to growth after one month. That is high compared with a 900 billion won drop in January last year and a 900 billion won rise in January the year before. Mortgage lending, in particular, rose by 3 trillion won in a month.

Bank mortgage lending fell by 600 billion won, extending declines for a second straight month, but non-bank financial institutions surged. Mutual financial institutions such as NongHyup and Saemaeul Geumgo led gains, rising by 3.6 trillion won and exceeding the prior month’s increase, while savings banks also returned to growth with a 300 billion won rise. With bank regulations maintained, loan demand shifted to non-bank lenders.

The Ministry of the Interior and Safety said it takes the rise in household loans at Saemaeul Geumgo seriously and will strengthen management. Saemaeul Geumgo will indefinitely halt new lending handled through loan solicitors from Feb. 19. Financial authorities also stressed they would strengthen monitoring across the sector because loan volatility could increase in February as demand from the new school term and moving season overlap.

With a need to rein in rising household loans, President Lee’s recent remarks are being received as a signal lending weight to the policy direction. Lee said on Feb. 13 it is problematic to provide financial benefits for acquiring multiple homes for investment and speculation.

Lee also asked whether it is fair to give additional benefits by extending loan maturities to those who held on without reducing multiple homeownership despite being given opportunities for years, including cuts to capital gains tax. The remarks are interpreted as a message that the principle of equity will also be applied in finance following the end of a grace period for heavier capital gains tax on multi-homeowners.

In response, the Financial Services Commission held an emergency inspection meeting with the entire financial industry the same day and decided to form a public-private joint task force to investigate the status of loan maturity extensions for multi-homeowners. It plans to comprehensively review outstanding balances of past loans to multi-homeowners, maturity distributions and extension procedures, and to prepare improvement measures.

Currently, additional home purchases by those owning 2 or more homes in the Seoul metropolitan area and regulated regions are effectively barred from loans. New loans are tightly restricted, but existing loans have been extended as a practice at the discretion of financial companies without separate rules.

If extensions are restrained, some expect pressure could rise for multi-homeowners to put properties on the market. Analysis also says an adjustment in holding strategies could become inevitable as it coincides with the end of the grace period for heavier capital gains tax. Some in the financial sector also point out that because mortgage loans are long-term, the market impact could be limited in the short term, and it is practically difficult to check each borrower’s multi-homeownership status one by one.

◆ Trend toward tightening the household loan management stance

In addition, measures to tighten lending rules, including expanding the scope of the total debt service ratio, or DSR, have resurfaced. DSR is a rule that sets loan limits based on a borrower’s principal and interest repayment burden relative to annual income. It currently applies only to principal and interest repayments on mortgage and credit loans, and interest repayments on jeonse loans for single-homeowners in the Seoul metropolitan area.

Financial authorities are reportedly reviewing whether to include in the upcoming household loan management plan a measure to reflect interest repayments on jeonse loans more broadly. Discussions also include putting interest repayments on jeonse loans above a certain size into DSR, considering that interest burdens for borrowers with large jeonse loans are rising rapidly. There are also many opinions that a cautious approach is needed on the scope and timing of application because jeonse loans are directly linked to end-user demand.

Financial authorities will officially announce this year’s household loan management target after the Lunar New Year holiday. A likely option is to set the target below last year’s 1.8 percent growth rate for household loans in the banking sector. They are also reviewing a plan to set detailed mortgage loan targets alongside overall volume management.

With household loan growth reviving, if adjustments are made at the same time to multi-homeowner loan extensions and the scope of DSR application, the lending management stance is expected to become even stricter. Assessments say policy pressure on the real estate market has intensified as two pillars, restraining total volume and blocking speculative demand, operate simultaneously.

A financial industry official said, “We are continuing to watch closely to what level the financial authorities’ measures to tighten lending rules will go and when measures to raise the level of regulation will be implemented.” The official added, “As strong policy signals continue, multi-homeowners’ borrowing strategies are highly likely to shrink, and even end-users may show a trend of adjusting funding plans more conservatively.”