Lending restrictions at South Korea's 13 commercial banks changed nearly 150 times over roughly the past year and a half. Data from the Financial Supervisory Service, obtained by the office of Rep. Han Min-soo of the Democratic Party of Korea, showed that the banks imposed a combined 149 self-imposed curbs on household lending — counted by product and application channel — between January last year and Aug. 11 this year. The pace of new restrictions picked up further this year. The measures took various forms: suspending mortgage lending outright, blocking loans for specific purposes and cutting borrowing limits. In scrambling to meet the government's cap on total household lending, the banks patched together one stopgap after another until their credit policies came to resemble a quilt of mismatched rules.
Financial regulators, pledging to rein in home prices, lowered their target for total household lending in June last year and capped mortgages in the Seoul metropolitan area and designated regulated zones at 600 million won ($430,000) or less. In September, they tightened further, cutting the loan-to-value ceiling on mortgages in regulated zones to 40% from 50%. When prices still failed to break, the authorities rolled out a plan in October to manage loan demand, then tightened the household debt target again in April this year, choking off bank credit.
Each time the government unveiled tougher lending rules, owner-occupier buyers and tenants alike were left anxious that the loan window would close on them. At one point, even group mortgages for buyers who had signed presale contracts on new apartments ran into trouble. The government belatedly moved to help owner-occupier buyers, but the remedy came too late, and instability in the property market persists.
Han said ordinary households had "taken a direct hit" and called on regulators to set clear and consistent lending standards for owner-occupier buyers. It says something that a lawmaker from the ruling party felt compelled to speak out. Tools such as the loan-to-value ratio were never meant as housing policy; they were instruments for managing financial soundness. But after the Roh Moo-hyun administration deployed them to barely contain a surge in home prices, successive governments have reached for them like a trusted sword whenever the housing market turned unsettled. Now even that remedy has lost much of its potency, and it is innocent owner-occupier buyers who are left to suffer. Rather than fixating on suppressing loan demand, the government should address home prices through an aggressive housing supply program. It should also simplify lending standards to make them transparent and predictable, sparing financial consumers further inconvenience and harm.
