iM Bank will reduce the limits on housing collateral loans from July. This is intended to tighten the reins on household lending management in line with the implementation of the three-tier stress debt service ratio (DSR) regulation. Previously, NH NongHyup Bank and SC First Bank had also taken measures to curb the increase in new loans by reducing household lending limits.
According to the financial sector on the 26th, iM Bank will limit the living stabilization fund loan limit to 300 million won starting from the 1st of next month. Previously, iM Bank had no specific limit on the living stabilization fund loan. This loan is an agreement loan where the borrower (the person borrowing the money) provides dwellings as collateral for purposes other than purchasing a dwelling. If the borrower signs an agreement stating that they will not purchase additional dwellings, they can borrow money for living expenses at a lower interest rate than for a credit loan.
On the same day, iM Bank will reduce the maximum term for metropolitan area housing loans from 40 years to 30 years. With a shorter term, the principal and interest that must be repaid each year increases, resulting in a reduction in the loan limit. The term for housing loans in non-metropolitan areas will remain at 40 years. An iM Bank official explained, "This is a proactive measure for managing household lending limits."
NongHyup Bank and SC First Bank have already started to reduce loan limits. NongHyup Bank restricted the signing of face-to-face and non-face-to-face mortgage credit insurance (MCI) and mortgage credit guarantees (MCG) starting from the 25th. MCI and MCG are insurances that must be signed when receiving a housing loan. Without this insurance, the amount that can be borrowed is limited to the amount excluding the small lease deposit, effectively reducing the actual loan limit. SC First Bank reduced the term for housing loans from a maximum of 50 years to 30 years on the 18th. The preferential interest rate for housing loans was also lowered by 0.25 percentage points, which resulted in a reduction of limits for some borrowers.
The recent reason banks are raising the threshold for housing loans is to suppress the increase in new loans in accordance with financial authorities' guidelines. Once the three-tier stress DSR regulation is implemented on the 1st of next month, the loan limits across the financial sector will decrease. Consequently, there is a surge in demand for last-minute borrowing ahead of the regulation's implementation. In May alone, household loans in the financial sector increased by approximately 6 trillion won. This month, it is estimated that household loan balances will increase by more than 6 trillion won as well. In response, financial authorities have summoned bank vice presidents to report on the status of household loan handling and coordinate on-site inspection schedules, thus embarking on vigorous management.
A representative from the commercial banks said, "It seems that the increase in household loans will ease after the implementation of the three-tier stress DSR regulation," but added, "Currently, the management stance of the financial authorities is strict, and individual banks are trying to implement additional measures and reduce the scale of new loans."