"Borrow Before Loan Limits Shrink": Share of Mortgage Loans With Rates Above 5% Surges [Housing Supply 'A Ticking Time Bomb']

Mortgage borrowers are being pushed toward high-interest rates of 5% or more a year. The move is seen as borrowers rushing to secure funds despite the higher cost, fearing that the government's tougher household loan regulations will shut the lending window in the second half of the year.
According to the financial sector on the 10th, the share of new mortgage loans with amortizing repayment terms carrying annual interest rates of 5% or higher rose sharply from the previous month at some major commercial banks in June.
At Shinhan Bank, the share of mortgage loans with rates above 5% jumped to 49.6% from 19.3% in the previous month, up 30.3 percentage points. That means nearly half of all new mortgage loans in June were issued at rates of 5% or higher. Over the same period, the share rose from 8.4% to 22.7% at KB Kookmin Bank and from 5.0% to 7.6% at Nonghyup Bank. Hana Bank and Woori Bank posted slightly lower shares than the previous month, at 3.4% and 6.8%, respectively.
The increase in borrowers accepting higher rates appears to reflect tighter household loan controls across the banking sector. A commercial bank official said, "Borrowers who are worried that mortgage loan limits will be reduced are rushing to take out loans even at rates above 5% a year."
Major banks have been stepping up total annual Household loans management since June. KB Kookmin Bank cut its mortgage loan limit from 600 million won to 300 million won in early July, effectively tightening lending further. Starting with Nonghyup Bank, the five major commercial banks are also restricting enrollment in mortgage insurance, a guarantee policy taken out together with mortgage loans, including MCG and MCI. When such insurance is restricted, banks cannot offset the deduction for small tenant deposits when calculating loan limits, which effectively reduces the mortgage loan ceiling.
Rising market interest rates also played a role. The five-year bank bond yield, a key benchmark for fixed-rate mortgage loans, climbed from around 4.080% in early May to 4.413% in early June. After fluctuating, it stood at 4.288% as of the 7th. As of that day, fixed-rate mortgage loans at the five major commercial banks, including KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank, had risen to between 4.62% and 7.38% based on the five-year bank bond yield.
A banking sector official explained, "Variable-rate mortgage loans are currently averaging in the mid-4% range, while fixed rates have climbed above 5%. Borrowers who expect rates to rise further are choosing fixed rates, which appears to be increasing the share of mortgage loans with rates above 5%."
The problem is that borrowers are likely to continue facing high interest burdens in the second half of the year as well. Banks are raising lending barriers further to meet their annual Household loans management targets. Hana Bank suspended new non-face-to-face mortgage loan applications from the 7th and will temporarily halt new variable-rate mortgage loans from the 12th. The suspension applies to both in-person and non-face-to-face lending.
A financial sector official said, "As Household loans continue to grow, banks are expected to tighten lending management in the second half of the year. With demand continuing to build to secure funds before loan limits are cut, more borrowers will inevitably take out loans at higher rates."
[email protected] Lee Hyun-jung Reporter