Shinhan Bank has decided to lower the threshold for household loans at the end of the year. The bank is increasing the loan limit and reopening applications for non-face-to-face loans. While this move is expected to provide relief for genuine demand, there are concerns that household debt may surge at the beginning of the year.
Starting from the 17th, Shinhan Bank will raise the loan limit for home mortgage loans meant for living stability from 1 billion to 2 billion won. They will also resume handling mortgage insurance (MCI) loans that were suspended last August and will again accept loan applications through loan agents. Additionally, measures will be implemented allowing owners of a single home to apply for jeonse loans and for jeonse loans to be available for newly unsold developments. These changes will apply to loans executed from next year since it typically takes 2-4 weeks for loan applications to be processed. Moreover, the bank is lifting the limit on credit loans set at 100% of annual income and reopening online lending.
Other banks are exhibiting similar trends. Hana Bank resumed sales of non-face-to-face home mortgage and jeonse loans starting from the 12th for loans executed next year. Woori Bank plans to restart non-face-to-face sales of mortgages and jeonse loans from the 23rd of this month, and will recommence sales of dedicated refinancing credit loans in the new year. It is expected that other banks will also participate in lowering the threshold for household loans.
Mortgage rates, which have been high, are also expected to decrease somewhat as the COFIX (cost of funds index), which affects adjustable mortgage rates, is declining. Last month, the COFIX for new loans dropped to 3.35%, a 0.02% point decrease from the previous month. The outstanding balance-based COFIX fell by 0.05% points to 3.53%, and the new balance-based COFIX fell by 0.02% points to 3.07%.
The reason banks are moving to ease household loan regulations is the reset of the loan cap next year. Since loan volume management is done on an annual basis, loans that were previously restricted will be loosened starting next year when the cap is reset. Additionally, concerns over economic slowdown amid a political impeachment scenario have increased the demand for loans among genuine customers.
There are expectations that this will relieve genuine demand for capital supply, although there are also worries that household debt could increase sharply at the start of the year. According to the Financial Supervisory Service, household debt at the end of the third quarter exceeded 1,900 trillion won for the first time, reaching a record high. In November, household loans from secondary financial institutions surged by 3.2 trillion won, surpassing banks, which increased by 1.9 trillion won.
Furthermore, as the political impeachment situation unfolds, there is an analysis that financial authorities may face greater difficulties in managing household debt. A financial industry official explained, “There is a high likelihood that the Bank of Korea will further ease its base rate due to concerns of an economic recession. Additionally, if the impeachment is approved and leads to a presidential election, the leadership of financial authorities, which have hitherto strongly curbed loan demand, may be relatively weakened.”