Home loans surge to record high at top 5 banks as authorities consider tightening DSR

A notice at a bank in Seoul displayed mortgage loan interest rates ranging from 4.42 percent to 6.29 percent per annum, on August 25. The recent surge in mortgage lending has surpassed the levels seen in August 2021, when the “maxed-out borrowing” craze was at its peak during the near-zero interest rate period. Yonhap News

Major commercial banks’ mortgage loan growth and new mortgage originations hit record levels. The increase was mainly driven by the sale of high-value homes in the metropolitan area. Financial authorities are considering all possible measures to curb household lending, including a reduction in the debt service ratio (DSR) limit.

According to financial institutions on August 25, the outstanding balance of mortgage loans (including Jeonse loans) at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 559.7501 trillion won as of the end of last month, an increase of 7.5975 trillion won from the previous month.

This is the largest monthly increase since January 2016, when banks began compiling the statistics. The scale of loans for home purchases has grown even larger than during the near-zero interest rate period of 2020-2021, which sparked the earlier “maxed-out borrowing” craze. The increase in mortgages at the five major banks so far this month has already reached 6.1456 trillion won on the 22nd, and is likely to set another monthly record.

The amount of new mortgages last month also surpassed the level of three years ago.

For example, a commercial bank issued 2.9873 trillion won in new mortgage loans (including policy loans) for home purchases last month, exceeding the 1.8074 trillion won issued in August 2021, when the “maxed-out borrowing” craze was at its peak, by over 1.1 trillion won. Another commercial bank also provided 1.1629 trillion won in mortgage loans last month, well above the previous peak of 910.2 billion won recorded in November 2011.

Major commercial banks have raised mortgage rates around 20 times in the past month to manage household debt, but the effect appears to have been minimal.

The banking sector attributes the surge in mortgage lending, despite the interest rate hike, to the impact of active trading of high-value homes in the metropolitan area. “The home sales market has revived after a long time, and with active sales particularly in the metropolitan area where there are many high-value homes, the loan volume has surged as well,” said an official at a commercial bank.

The concentration of home sales in the metropolitan area and among high-value properties is also evident in statistics. RealToday, a real estate research firm, analyzed monthly apartment sales transaction data from the Korea Real Estate Agency, and found that for the first time since February 2021, the share of apartment sales in the metropolitan area exceeded 50 percent of all apartment sales nationwide in June 2024. In fact, the proportion of new mortgage loans granted by commercial banks that were secured by properties in the metropolitan area was around 70 percent, reflecting a high concentration in that region.

Prices of homes sold mainly in the metropolitan area have also increased. According to the real estate transaction price disclosure system of the Ministry of Land, Infrastructure and Transport (MOLIT), the share of apartment transactions in the metropolitan area (Seoul, Gyeonggi, and Incheon) priced over 900 million won reached 23.7 percent this year, up from 14.99 percent in 2021. This is a nine percentage point increase.

The financial authorities are reportedly considering various measures, including reducing the DSR limit to 35 percent from the current 40 percent, lowering the guarantee ratio for Jeonse loans, abolishing the grace period for mortgage loans, and tightening the loan-to-value (LTV) ratio.

※This article has undergone review by a professional translator after being translated by an AI translation tool.