Relief in sight for homebuyers worried about blocked move-in loans

A real estate agency in Eunpyeong-gu, Seoul, displays listings for non-apartment units. [Yonhap]

Prospective apartment residents who have been scrambling to secure interim and final installment loans ahead of their move-in dates are expected to find some relief. The government has raised its household debt growth target for this year from 1.5% to 3% and decided to exclude group loans from per-institution lending caps. Mutual finance lenders — including Nonghyup, credit unions and Saemaul Geumgo — that have in effect exhausted their loan limits are also expected to gain room to extend additional group loans.

Financial authorities said Sunday they are reviewing a plan to allocate additional household loan capacity to the financial sector. Mutual finance institutions, whose net loan growth limits were restricted to between 0 and 1 percent this year due to poor household loan management last year, would be included in the allocation.

Saemaul Geumgo and credit unions are currently barred in effect from any net increase in household loans. Nonghyup may expand its loan balance by no more than 1 percent above its end-of-last-year level.

Despite the strict regulations, household lending at mutual finance institutions has surged. According to the Financial Services Commission, mutual finance sector household loans grew by 10.6 trillion won ($7.49 billion) in the first seven months of this year — already matching the full-year increase recorded last year.

The surge was driven in part by a balloon effect, as borrowers shifted to non-bank lenders after banks tightened their household lending standards early in the year. Group loans that mutual finance institutions had committed to before tightening their own lending also continued to be disbursed in sequence, amplifying the increase.

Financial authorities decided through this package of measures to manage group loans separately from per-institution lending caps. The decision reflects a judgment that genuine end-users were being harmed as financial institutions preemptively cut lending out of concern over breaching their caps, even as demand for relocation, interim and final installment loans was rising.

A teller window at a bank in Seoul. [Yonhap]

The government plans to direct a significant portion of the roughly 30 trillion won in additional lending capacity unlocked by the higher debt growth target toward group loans. That allocation will be managed separately from individual institution caps, under a reserve pool overseen directly by financial authorities.

The current household debt cap framework consists of three components: per-institution limits, policy loans and a reserve pool. The intent is to include group loans within the overall 3 percent growth ceiling while removing them from per-institution caps — maintaining the broader household debt management stance while reducing loan disruptions for genuine end-users.

The new framework will be applied based on projected group loan disbursements in the second half of the year and will not apply retroactively to loans already disbursed in the first half.

"There will be no situation in which a financial institution is unable to extend loans to genuine end-users because of pressure from aggregate lending caps," a Financial Services Commission official said. "The additional 30 trillion won in capacity will be more than sufficient to absorb group loan demand from households scheduled to move in."

However, the bar is unlikely to drop significantly for general mortgage loans or credit loans outside the group loan category. Many mutual finance institutions have already exceeded their existing caps, meaning that even with additional capacity, resuming previously suspended lending immediately would be difficult.

"Even if the overall loan volume increases, many institutions have already gone over their limits, so reopening loans that were previously suspended will not be easy," an official at one mutual finance institution said.

Mutual finance institutions have been managing their loan balances since early this year by scaling back new business. With repayments on existing loans continuing, the monthly net increase has been gradually declining.

There is also hope that expanded lending capacity at banks could produce an indirect benefit for mutual finance lenders. If move-in buyers take out final installment loans from banks to repay interim loans held at mutual finance institutions, those repayments would free up equivalent new lending capacity within the mutual finance sector.

attom@heraldcorp.com