'Signed a contract, can't get a loan': Calls to ease mortgage rules dominate real estate forum

President Lee Jae Myung speaks at the National Forum on Real Estate Policy held at KBS in Yeouido, Seoul, on Thursday. [Yonhap]

Calls to ease lending restrictions erupted at a government-organized forum designed to gather public input on real estate policy. The outpouring is expected to deepen the dilemma facing financial regulators as they try to strike a balance between managing household debt and supporting genuine homebuyers.

Housing finance deregulation emerged as the central issue at the National Forum on Real Estate Policy, chaired by President Lee Jae Myung on Thursday at the KBS annex in Yeouido, Seoul.

Lee Hyeong-il, first vice minister of the Ministry of Economy and Finance, presented the results of a pre-forum public consultation on housing finance, organizing the findings around four themes: overall loan volume management, lending restrictions for young and genuine-need borrowers, relocation loan management, and jeonse loan management. Lee said each issue produced sharply divided opinions between easing and maintaining current rules — with loan volume caps drawing calls for temporary use on one side and arguments for keeping them to stabilize the housing market and curb household debt on the other.

However, while the in-person expert debate produced arguments on both sides, the public voices submitted online were overwhelmingly in favor of deregulation.

Lee himself acknowledged that online submissions were dominated by calls to ease overall loan volume caps and relocation loan rules, and by demands for urgent expansion of support for young people and newlyweds seeking to buy homes, as well as for greater jeonse loan supply.

The concentration of public submissions in the housing finance category — gathered over 10 days from July 14 through the forum via the government's policy proposal website — illustrates just how deeply frustration over lending restrictions runs among the public when it comes to real estate. As of 10 a.m. Thursday, 2,386 of the 5,446 total real estate policy proposals received — 43.8 percent — were related to housing finance.

The dominant theme was calls to ease mortgage restrictions for non-homeowning genuine buyers, young people and newlyweds. Particularly prominent were urgent appeals from those preparing to buy a home who said strict regulations were blocking them from securing the funds they needed.

A person identified only by the surname Lee said they had signed a contract on a home for newlyweds priced at under 500 million won ($338,000) for the purpose of actually living there, but could not secure financing because of lending restrictions. A person surnamed Park said they were due to move in during the second half of the year but that loan volume caps had caused partner banks to close their consultation intake early, leaving them with no choice but to look into unsecured credit loans or borrow from family and friends.

Many submissions called for mandatory advance notice or grace periods to account for the gap between signing a real estate contract and actually drawing down a loan. A person surnamed Kang said that when a policy change cuts off access to a loan, the government should put in place minimum safeguards such as public guarantees or temporary policy financing.

The backlash reflects growing market anxiety as banks have repeatedly raised their lending thresholds in recent months to manage household loan volumes. Major banks have been imposing their own restrictions: KB Kookmin Bank has capped mortgage loans across the board at 300 million won, while Industrial Bank of Korea has abruptly halted the supply of variable-rate mortgages, with the tightening intensifying. For genuine homebuyers, financing channels have in effect been shut off.

The National Forum on Real Estate Policy, chaired by President Lee Jae Myung, takes place at the KBS annex in Yeouido, Seoul, on Thursday. [Yonhap]

The public clamor for deregulation has left officials in and around the Financial Services Commission visibly uncomfortable. The regulator, tasked with keeping household debt growth in check, is in no position to ease lending rules readily — and doing so would directly clash with its declared stance of "boldly severing the link between real estate and finance."

For now, the FSC says it will maintain its strict household loan volume management approach. Shin Jin-chang, secretary general of the FSC, said at a pre-briefing for the agency's work report on Tuesday that easing household debt management in the current environment risked stimulating the housing market and could conflict with the push to redirect credit toward productive uses, adding that the FSC was not considering relaxing loan volume caps.

Still, analysts say the regulator will find it hard to ignore public sentiment entirely given the scale of the demands voiced at the forum. Markets see a possibility of limited, targeted adjustments focused on specific genuine-need groups such as young people, newlyweds and non-homeowners.

Questions are also being raised about whether additional household lending restrictions can still move forward. The FSC had been reviewing a range of further tightening measures, including expanding the scope of the debt service ratio and introducing new jeonse loan restrictions for non-resident single-homeowners. Pushing ahead with additional rules while borrowers continue to plead financial hardship could intensify the backlash from those already struggling to secure funds.

President Lee Jae Myung listens to an expert presentation at the National Forum on Real Estate Policy held at the KBS annex in Yeouido, Seoul, on Thursday. [Yonhap]

At the forum, Kim Yeong-do, a senior research fellow at the Korea Institute of Finance, presented on the theme of "Reassessing the Housing Finance System." He argued that while some rationalization of regulations is necessary, any decision must be made with caution given that the destabilizing effect of easing financial rules on the housing market far outweighs the stabilizing effect of tightening them.

Kim renewed a proposal he had made at an earlier FSC-chaired thematic forum, calling again for the introduction of a macroprudential levy. The idea is to impose a separate charge on borrowers taking out large mortgages or high-risk loans — curbing excessive credit expansion without uniformly blocking lending opportunities for genuine homebuyers.

"The proposal is to levy a charge on borrowers who make disproportionately heavy use of loans, which are a socially limited resource," he said. "Since no single regulation can address everything, there is a need to introduce rules that complement existing quantitative controls and improve the quality of credit management."

ehkim@heraldcorp.com
hyuk@heraldcorp.com