Ahead of the government's announcement of comprehensive property measures, financial institutions are raising lending hurdles. With the possibility that the government could unveil a property package covering taxation, finance and supply as early as next month, banks are moving first with self-imposed curbs such as reducing credit loan limits and tightening management of overdraft facilities. Pre-emptive steps appear to be gathering pace as lenders keep an eye on rising household debt, even though it has not been decided whether to tighten mortgage and jeonse loan rules.

The financial sector said on the 17th that the government is reportedly reviewing a plan to announce a combined package next month, along with the direction for a property tax overhaul. President Lee Jae-myung (이재명) has previously mentioned that the aim is to organise property policy at once, including taxation, finance, regulation and supply. The government has said, however, that online posts spreading about a 'June comprehensive property package' are not true.

The biggest focus in finance is tighter regulation on jeonse loans. The market is discussing measures such as limiting guarantees for new jeonse loans to non-resident single-home owners or lowering guarantee ratios. As banks extend jeonse loans based on guarantees from the Housing and Urban Guarantee Corp (HUG), the Korea Housing Finance Corp (HF) and SGI Seoul Guarantee, restricting guarantees could effectively make it difficult to supply such loans. If guarantee ratios are lowered, banks could face greater risk of loss, raising the bar for screening.

Another issue is extending maturities on existing loans. A plan is being discussed to restrict extensions of jeonse loans for borrowers among non-resident single-home owners who are classified as speculative demand. As jeonse loans are typically repaid at maturity using deposits returned by landlords, there is a strong possibility that applying a method that reflects principal in the debt service ratio will be handled cautiously. At present, only interest payments are included in the DSR calculation for some single-home owners' jeonse loans in the Seoul metropolitan area and regulated areas.

The possibility of tighter regulation on credit loans at non-bank lenders is also on the market's radar. If mortgage lending and bank credit loans are blocked, loan demand could shift to savings banks, mutual finance institutions and card companies. As the government has strengthened management of household debt in a direction that weakens the link between the property market and finance, blocking detour lending through non-bank lenders is also being discussed as a pillar of the comprehensive package. This, too, has not yet been finalised.

Banks are accelerating management of credit loans. The Financial Services Commission said in a recent household debt review meeting that total household loans across the financial sector rose by 9.3 trillion won in May. The increase in mortgages slowed, but other loans shifted back to growth, widening the overall rise in household lending. Financial authorities said they will activate an emergency household debt management system and strengthen inspections of financial firms that fail to meet management targets.

Banks are therefore adjusting credit loan limits first. KB Kookmin Bank has limited the maximum for general credit loans to 100 million won and the maximum for overdraft facilities to 50 million won from the 16th. Shinhan Bank is tightening management by reducing limits when extending maturities for overdraft facilities with low utilisation rates.

Hana Bank has also adjusted the limit for personal credit loans to around 100 million won from the 12th and has moved to tighten management of unused overdraft limits. Woori Bank, meanwhile, stopped accepting applications for its non-face-to-face credit loan refinancing product from the 12th.

Internet-only banks have also joined the trend. That is because as major banks cut credit loan limits, the likelihood is growing that demand could move to lenders with relatively lower hurdles. The financial sector said that some internet-only banks reportedly saw cases on the day where daily loan limits were exhausted before 9 a.m.

KakaoBank will cut its overdraft limit from a previous maximum of 240 million won to 100 million won from the 22nd. From July, it will reduce extension limits for high-value overdraft accounts with low utilisation rates. K Bank temporarily suspended new sales of its overdraft facility with a maximum limit of 300 million won until the end of July.

Toss Bank will also lower limits for credit loans and overdraft facilities to 100 million won and 50 million won, respectively, from the 18th. It said loan applications could also be restricted if lending exceeds a certain level, to prevent a sharp expansion in loan volumes.

Banks' tightening of lending is seen as a pre-emptive move in line with the government's stance on managing household debt. Demand for investment using credit loans has increased amid a recent stock market boom, and moves to secure funds in advance could also grow ahead of the property package. For financial institutions, if they fail to control the pace of loan growth, the intensity of future oversight by financial authorities may have to increase.

If loan curbs expand across the board, however, the burden of financing for end-users could also grow. Shrinking guarantees for jeonse loans would increase the cash burden on jeonse residents, while cuts to credit loan limits could also affect demand to cover shortfalls in the home-buying process. If regulation expands to non-bank lenders, the effect of blocking detour lending would grow, but access to funds for mid- and low-credit borrowers could fall.

The key to the comprehensive property package expected next month is ultimately projected to be a balance between blocking speculative funds and protecting end-users. If the government raises the intensity of household debt management by tightening lending across the board at the same time, lending growth in the financial sector is likely to slow sharply. Concerns are also emerging that if demand rushes in early to secure funds before rules take effect, it could become even harder for end-users to raise funds.

A financial sector official said, "The more tighter loan regulation is signalled, the more borrowers may feel, 'Let's get it before it is blocked.'" The official added, "The problem is that if this demand floods into bank branches, limited lending capacity could be used up first by investment demand, and end-users or mid- and low-credit borrowers could be pushed to non-bank lenders."