The Bank of Korea stated that household loans may surge between August and September this year, and it will carefully decide on further interest rate cuts. The bank suggested that if housing prices in the metropolitan area do not stabilize, it should expand regulated areas and land transaction permission zones.
According to Yonhap News on the 1st, Deputy Governor Yoo Sang-dae and others reported this to the Presidential Committee on Policy Planning on the 27th of last month.
The bank recently diagnosed that the housing market in the metropolitan area is showing signs of overheating. This month, the rate of increase in apartment prices in Seoul is the highest since September 2018, and transaction volume is expected to exceed last year's peak. Household debt risk is also increasing. The monthly increase in total financial sector household loans recorded 6 trillion won in May, and last month it approached 7 trillion won.
In this regard, the bank noted that "household loans may surge between August and September due to the overheating of the housing market" and stated, "If the overheating does not ease, there is a concern that the management of household debt could be shaken, so it is necessary to pay special attention."
The bank is reportedly preparing to report to the committee a high-intensity additional regulatory proposal that can be implemented if housing prices in Seoul do not stabilize, despite the lending regulations that were put in place last month. It suggested first expanding the adjustment target areas and speculative overheating zones to neighborhoods in Gangnam and around Yongsan, where housing prices have skyrocketed, as well as adding areas for land transaction permissions in Seoul.
It also proposed expanding the application scope of the debt service ratio (DSR) to include policy loans and rental loans for homeowners in the metropolitan area. Additionally, it is reported that the bank is also considering raising the risk weight for housing mortgage loans by financial institutions. Increasing the risk weight for new housing mortgage loans will cause banks to increase loans more conservatively in order to maintain capital ratios.