Borrowers face double whammy from tighter lending, higher rates

Apartment complexes are seen in Seoul's Gangnam District, Monday. Yonhap

"I found a 1.1 billion won ($737,000) apartment I wanted to buy and planned to finance 450 million won with a mortgage. But my entire plan has fallen apart now that banks are suddenly tightening mortgage lending," one user wrote on a Naver real estate community.

"I had planned to buy a home using my savings and a mortgage of up to 600 million won. But after KB Kookmin Bank cut its mortgage lending cap to 300 million won last week, I had no choice but to abandon the plan," another user wrote.

Similar complaints have spread across online communities in recent days as major lenders tighten household lending, making it increasingly difficult for prospective homebuyers to secure mortgages.

The country's five largest lenders — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — have begun tightening mortgage rules after approaching their annual household lending growth targets set by financial authorities.

As of early July, the banks have already used about 80 percent of their annual lending capacity for this year.

Last Wednesday, KB Kookmin Bank halved its mortgage lending cap for home purchases to 300 million won from 600 million won. Shinhan Bank suspended new mortgage applications submitted through loan brokers, while Hana Bank followed suit by halting broker-mediated applications for mortgages scheduled to be disbursed in September.

Several banks have tightened mortgage insurance requirements, effectively reducing the maximum amount of loans.

Existing borrowers, meanwhile, are bracing for higher repayment costs as the Bank of Korea (BOK) prepares to enter a rate-hike cycle.

According to the Korea Federation of Banks, fixed-rate mortgage rates at the country's major lenders now exceed 7 percent at the upper end after climbing steadily in recent months.

Market watchers expect borrowing costs to remain elevated if the BOK embarks on a tightening cycle amid persistent inflation, stronger-than-expected economic growth driven by semiconductor exports and rising household debt.

The central bank is widely expected to raise its benchmark interest rate by 0.25 percentage point to 2.75 percent at Thursday's Monetary Policy Board meeting, marking what would be its first rate increase since January 2023.