This year, the increase in policy loans such as Didimdol and Bogeumjari rent-deposit support has surpassed the growth in banks' own mortgage loan balances. Banks curtailed mortgage lending following the government's call to tighten control over household loans. Citing "protection of end users," the government has exempted policy loans from certain regulations.
According to data titled "Status of increases and decreases in household loans across all financial sectors (including portions transferred to the Korea Housing Finance Corporation)" that the Financial Supervisory Service submitted to People Power Party lawmaker Lee Heon-seung's office on the 28th, policy loans increased by 1.48 trillion won this year through the 24th of last month. That is 200 billion won more than the increase in banks' own mortgage loans (1.46 trillion won).
Last year, policy loans rose by 2.05 trillion won for the year, while banks' own mortgage loans increased by 3.16 trillion won. The reversal this year stems from successive government regulations that abruptly reduced banks' overall lending volume. When announcing the household loan regulations on Jun. 27, the financial authorities instructed all financial sectors to cut the increase in household loans in the second half to about half the target level.
By policy loan product, Didimdol loans (home purchases) and Bogeumjari rent-deposit loans (jeonse) increased by 1.46 trillion won and 470 billion won, respectively, this year, while Bogeumjari loans decreased by 450 billion won from the end of last year. Didimdol loans support the purchase of dwellings priced at 500 million won or less (600 million won for newlyweds and multi-child households), with a loan limit of up to 200 million won. For Bogeumjari loans, when purchasing dwellings priced at 600 million won or less, borrowers can receive up to 360 million won (400 million won for multi-child households and victims of jeonse fraud, 4.2 trillion won for first-time homebuyers).
The government says it will not restrict policy loans intended for end-use demand. For this reason, it strongly considered including policy loans when calculating the stress debt service ratio (DSR—the amount of principal and interest to be repaid in a year divided by the borrower's annual income), but ultimately did not include it in the Oct. 15 real estate measures. It also tightened the loan-to-value ratio (LTV—loan amount relative to home price) for mortgage loans in regulated areas from 70% to 40%, but kept the LTV for Didimdol loans at 70%. Only for Bogeumjari loans was the LTV strengthened from 70% to 60% (55% for non-apartment properties).
The problem is that policy loans, which continue to grow due to a "regulatory gap," are propping up home prices. Bank of Korea Governor Rhee Chang-yong said at a real estate finance policy conference in April, "Politically, it is right to help newlyweds and low-income groups with low-interest rates. But this pushes up home prices and makes it that much harder to buy a home." Regarding this, an official at the financial authorities said, "Easing the housing cost burden for ordinary people is also an important policy goal," adding, "We believe we should be cautious about regulating policy loans, the majority of which go to end users."