Household loans surge in May

Household loans surge in May

최초입력 2025.06.12 10:54:50

(Gettyimagesbank)

Household loans in South Korea surged by over 6 trillion won ($4.37 billion) in May 2025 despite tighter oversight by financial authorities.
Data released by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) on Wednesday showed that the total household loan balance in the financial sector rose by 6 trillion won in May, with bank loans increasing by 5.2 trillion won, while loans from secondary financial institutions grew by 800 billion won.
The primary driver of this growth was mortgage loans rising by 5.6 trillion won, up from 4.8 trillion won in April, with analysts believing that this was due to a rush of last-minute borrowers trying to take out loans ahead of the tightening of loan regulations in July. The interest rate premium applied to mortgage loans in the capital region will rise from 1.2 to 1.5 percentage points from that month onwards, effectively lowering the loan limit.
A borrower with an annual income of 100 million won taking out a 30-year variable-rate mortgage at 4.2 percent, for example, would see their loan limit decrease by 18 to 30 million won depending on the product type.
The end of the land transaction permit requirement in southern Seoul in February 2025 also stimulated home sales and loan demand as well, analysts said. Given the usual 2-to-3-month lag between loan consultation and approval, this likely contributed to the increase in mortgage lending through May.
Credit loans also grew by nearly 800 billion won, although this was down from 1.2 trillion won in April.
The resurgence in household lending is sounding alarms for the new administration’s debt management efforts. Financial authorities announced on Wednesday that it plans to launch a detailed investigation into the handling of mortgage loans in the capital region and crack down on attempts to bypass the debt service ratio (DSR) regulations, such as through faulty income verification.
The Phase 3 DSR regulations will proceed as planned, contrary to some expectations that the new government would ease DSR rules. The threshold for government-guaranteed jeonse loans, or loans for long-term housing rental deposits, will also go up.
Housing guarantee institutions such as Korea Housing & Urban Guarantee Corp. (HUG) and Seoul Guarantee Insurance Co. (SGI) will standardize their guarantee coverage ratio at 90 percent, down from 100 percent, from Wednesday to Friday. They will also strengthen ability-to-repay assessments by implementing stricter income verification systems.
These steps aim to rein in the 200 trillion won jeonse loan market.
“We urge financial institutions to review whether their lending practices have become lax compared to earlier this year and strictly follow monthly and quarterly management plans to prevent funds from being excessively concentrated in particular regions or time periods,” FSC Secretary-General Kwon Dae-young said.
The issue, however, is that household loans are expected to continue increasing despite the new regulations. Housing transactions in the capital region - an indicator that typically precedes a rise in mortgage lending - jumped from 13,000 units in January 2025 to 25,000 in April.
Bank of Korea official Park Min-cheol predicted that “the upward momentum in household loans is likely to persist for a while, based on the housing transaction trend in May 2025.”
Authorities plan to take additional measures if household debt exceeds manageable levels, and an option under consideration is an outright ban on mortgage lending for multiple homeowners, which currently varies by bank.
Another is lowering the jeonse loan guarantee ratio further to 70 percent specifically in the Seoul metropolitan area. Authorities are also considering increasing the capital risk weight on mortgage loans (currently 15 percent) to pressure banks to reduce such lending.
However, to minimize the impact on genuine homebuyers, they plan to expand support for low- and middle-income borrowers by raising the supply of subsidized loans such as Bogeumjari Loans from 2024’s 9.3 trillion won to 11.9 trillion won this year.
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Household loans surge in May

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