The government's policy of managing the total volume of household loans has been sharply eased after six months. Financial authorities doubled this year's target for household loan growth to 3 percent from 1.5 percent, a move expected to expand the financial sector's annual room to increase lending to around 60 trillion won from about 30 trillion won. The change creates additional space for loans to real demand borrowers after banks restricted loan applications to meet annual caps, leading to what has been dubbed a loan "open run."

According to a "comprehensive financial package to stabilise the real estate market" announced on Aug. 13 by the Financial Services Commission, the growth rate for the total volume of household debt this year will be raised to about 3 percent from 1.5 percent. The FSC plans to use the expanded lending room to promote housing supply through relocation loans, intermediate payment loans and balance payment loans, stabilise housing for young people and ease funding difficulties for real demand borrowers.

### 1.5 to 3 percent in six months: why double it

The adjustment effectively makes a large revision to the household loan management target the government set at the start of the year.

The FSC said it originally planned to manage household loan growth at about 1.5 percent, but housing and asset market conditions later changed and inconveniences for real demand borrowers increased as the financial sector worked to meet the total cap target.

In a briefing, the FSC said market conditions are "clearly different" from when it set the 1.5 percent target. As housing transactions increased and credit loans rose quickly, keeping the original target could excessively reduce loan capacity for real demand borrowers, particularly for mortgages. The FSC said it is reasonable to adjust the cap level as conditions have changed.

Recently, banks have limited daily and monthly mortgage application volumes to meet annual household loan cap targets, leading to loan applications concentrating at certain times. This has raised an issue in which borrowers cannot obtain loans if limits are exhausted first regardless of repayment ability or creditworthiness.

The FSC expects that as the cap doubles, lending room across the financial sector, including banks and internet banks, will expand and these phenomena will be eased to a significant extent. It plans to monitor actual lending conditions after the measures are announced to check for inconveniences on the ground.

### Around 30 trillion won to around 60 trillion won: caps differ by bank

The permitted range for household loan growth will also expand significantly. The FSC said that if total household loans are assumed at about 1,800 trillion won, 1 percent corresponds to about 18 trillion won.

On that basis, it estimated that annual room for increases was around 30 trillion won when the growth rate was managed at 1.5 percent, but would rise to around 60 trillion won if raised to 3 percent.

Not all banks' lending limits will mechanically double.

The FSC said that, broadly, total cap management room in the primary and secondary financial sectors will expand by about double, but the actual room allocated to each financial company can differ depending on first-half lending performance, whether it exceeded existing targets and loan portfolios.

For financial companies that faced penalties for failing to meet last year's or existing management targets, it will also review the reflection method again in consideration of the changed cap level. Ultimately, how much additional lending each bank will be able to provide must be finalised through consultations between financial authorities and the financial sector.

### Relocation and balance loans to be 'managed separately within the 3 percent'

A somewhat complex part of the measures is how relocation loans, intermediate payment loans and balance payment loans will be handled.

The FSC decided to separately manage housing supply-related mortgages, such as relocation loans for reconstruction and redevelopment and intermediate and balance payment loans for newly built complexes, from financial companies' total cap management targets.

That does not mean these loans are excluded from the government's overall household loan cap.

The FSC said, "Relocation loans, intermediate payment loans and balance payment loans are all included in the 3 percent growth rate for overall household loans." It means overall household loans will be managed within 3 percent, but when allocating and managing the cap by financial company, it will set aside separate space so these loans do not block funding for real demand borrowers.

How to split and pre-allocate limits for relocation, intermediate payment and balance payment loans has not been decided at this stage. The FSC said it is difficult to accurately forecast demand for individual loans and plans to prepare detailed management methods through consultations with the Financial Supervisory Service and the financial sector.

### Ease pressure on mortgages, but manage credit loans

The expanded cap will not lead to an expansion of all types of loans. The FSC said it believes recent growth in credit loans reduced banks' capacity to provide mortgages and decided to manage loan categories differently.

It will ensure mortgages are supplied at an appropriate level by considering funding difficulties for young people and real demand borrowers and real estate market conditions, while managing the upward trend in credit loans through financial companies' autonomous management.

The FSC said it does not plan to set a separate total cap target for credit loans at present. It plans for each financial company to autonomously manage its loan portfolio within the overall household loan limit.

Even with the measure, the basic framework of lending regulations such as loan-to-value and debt service ratio rules will remain unchanged.

LTV at 40 percent in regulated areas, DSR at 40 percent in the banking sector and mortgage limits by home price will be maintained. Rather than fully easing lending rules, financial authorities are focusing on supplementing funding problems for real demand borrowers that arose in the process of managing total caps.

Shin Jin-chang (신진창), head of the FSC secretariat, said, "At real estate-related forums, the most common appeals were about inconvenience in obtaining loans." He added, "We also cannot help but think about whether we can lend without limits to everyone who wants a loan."

FSC Chairman Lee Eok-won (이억원) said, "The direction of financial policy for real estate policy has been maintained consistently." He added, "We will reduce inconvenience for real demand borrowers while maintaining LTV and DSR rules and loan limit standards."

A banking industry official said that reviews of easing mortgage limits that are currently being restricted autonomously are expected after communication with authorities on cap targets takes place in August.