Hyundai Capital's headquarters. [Hyundai Capital]
Hyundai Capital's headquarters. [Hyundai Capital]

As banks sharply curtail mortgage lending to manage household debt, the outstanding balance of home-backed loans at capital firms has grown by about 56 billion won ($37.8 million) in just six months this year — a sign that cash-strapped borrowers are moving to capital companies despite their higher interest rates, in a classic balloon effect.

Critics say the government's lending restrictions are not reining in housing prices but instead increasing the financial burden on ordinary people and pushing demand into the secondary financial sector.

According to data submitted Tuesday by the Financial Supervisory Service to the office of People Power Party lawmaker Lee Yang-su, Hyundai Capital — the only capital firm offering residential mortgage loans to households — recorded new mortgage originations of 84.35 billion won as of end-June. That marks a 46.14% surge from 57.72 billion won at end-January, just six months earlier.

The outstanding mortgage balance has also risen consistently. The balance stood at 3.3959 trillion won at the start of the year and climbed to 3.4517 trillion won by end-June.

Mortgages' share of Hyundai Capital's total new household loan originations jumped more than 10 percentage points — from 21.17% in January to 31.38% in June — while auto loans' share fell from 72.64% to 61.37% over the same period. Analysts say the shift signals a broader restructuring of the capital firm's asset portfolio toward mortgage-centered lending.

Home purchase financing has traditionally been the domain of first-tier commercial banks. Yet borrowers are turning to capital firms for mortgages even at higher rates, largely because of banks' tighter loan-limit rules. Banks are currently subject to a debt service ratio cap of 40%, while specialized credit finance companies such as capital firms are allowed up to 50%. With some banks recently suspending mortgage originations altogether as part of aggressive tightening measures, owner-occupier borrowers are increasingly turning to capital firms despite the added interest burden.

The gap between bank and non-bank mortgage rates is narrowing as rising benchmark interest rates push the upper end of bank mortgage rates past 7.5%. As of Monday, the five major banks — KB, Shinhan, Hana, Woori and NH NongHyup — were offering five-year fixed-rate mortgages at 4.79% to 7.52% per annum. Hyundai Capital's mortgage rates range from 5.43% to 11.78%.

Capital firms are ramping up marketing in response. Hyundai Capital has been promoting the option to apply for up to 300 million won in additional loans without repaying existing debt, actively courting borrowers in need of funds. Other capital firms are also monitoring market conditions and considering expanding their real estate loan product lines.

A senior official at one capital firm said the company is internally aware that some peers are pushing hard to expand their mortgage product offerings. "We have determined that a business review is warranted and are keeping a close eye on market developments," the official said.

Amid this trend, the FSS has been tracking daily movements in bank household loans and credit card lending to get ahead of any buildup. An FSS official said the agency is "focusing on the total household loan balance rather than the breakdown by individual product at each company."

Critics point out, however, that because the FSS monitors capital firms only at the aggregate household loan level rather than by individual product, the concentration in mortgages is going undetected. In fact, Hyundai Capital's total household loan volume fell 1.37% over the same period, as new auto loan originations dropped 16.68% from the start of the year — effectively masking the surge in mortgage lending.

Rep. Lee said the government's loan squeeze is "not curbing real estate borrowing demand but instead driving people into the secondary financial sector, where the burden is far greater." He called on the government to track changes in capital firms' mortgage lending and announce countermeasures before borrowers suffer from high-interest loans.


won@heraldcorp.com