KB Kookmin Bank halves mortgage cap to W300m, leaving homebuyers in shock

A salaried worker in his 30s living in a jeonse ("long-term deposit lease") apartment in Seoul has been scouting properties every week since last month, convinced that tightening government loan regulations would soon price him out of the market. Then came the news he had been dreading: KB Kookmin Bank announced it would cut its mortgage ceiling from 600 million won ($397,000) to 300 million won. With other banks reportedly considering similar restrictions, he said he felt utterly lost — having already scraped together every bit of cash he could, he now wonders whether buying a home in his lifetime is even possible.

KB Kookmin Bank has announced a drastic move to halve the maximum loan amount for home purchases on properties valued at 1.5 billion won or less — a preemptive step to comply with financial regulators' household lending quotas as the real estate market shows fresh signs of overheating. Other commercial banks are also reviewing ways to tighten lending restrictions to prevent a "balloon effect," in which demand floods into rival lenders.

KB Kookmin Bank will reduce the maximum loan limit for home-purchase mortgages in Greater Seoul and regulated zones from 600 million won to 300 million won starting Friday, according to financial industry sources. The restriction will remain in effect until further notice.

Under current government rules, borrowers can take out up to 600 million won from banks for homes priced at 1.5 billion won or less in Greater Seoul or regulated zones. From Friday, Kookmin Bank will cap that at 300 million won. The bank will apply the same 300 million won ceiling to properties in non-regulated areas as well.

The bank said it adjusted the loan ceiling preemptively as early signs of overheating emerged in the real estate market. "Recent housing transaction trends suggest the real estate market is coming back to life," a Kookmin Bank official said. "We intend to proactively rebalance our household credit portfolio to ensure stable management of household lending. We plan to operate with both the protection of genuine homebuyers and financial market stability in mind."

Consumer expectations for home price increases are also rising. The Bank of Korea's June consumer sentiment survey put the housing price outlook index at 120 — up 8 points from the previous month for the third consecutive month, following gains in April and May. Market observers say a rally in share prices driven by a semiconductor industry boom could spill over into the real estate market.

The bank's move also appears to reflect tighter household lending quotas imposed by financial regulators. Last year, Kookmin Bank exceeded the household loan growth target set by regulators and was assigned the lowest growth target among the five major commercial banks this year, at 0.59 percent.

Kookmin Bank's sweeping restrictions are expected to cause considerable confusion among borrowers. When the news broke Wednesday, real estate online communities were flooded with posts such as "Should I rush to find a loan at another bank and buy now?" and "I'm completely at a loss."

There is a strong likelihood that borrowers will rush to other commercial banks before similar restrictions take hold there. Analysts expect mortgage regulations to tighten across the banking sector as a whole. Some banks are already reviewing tighter measures. Shinhan Bank said it will restrict subscriptions to mortgage credit insurance and mortgage credit guarantees starting Friday until further notice. Limiting access to those products effectively reduces the maximum loan amount a borrower can receive.

"When one bank sharply tightens lending, a balloon effect — where demand shifts to other banks — is inevitable," said a lending official at one commercial bank. "Even if we don't go as far as Kookmin Bank, there is a possibility we will tighten controls by managing daily caps on loans through non-face-to-face channels, loan brokers and branch offices."

Other commercial banks are not flush with lending room either. As of July 2, the combined household loan balance — excluding policy loans — at the five major banks, KB Kookmin, Shinhan, Hana, Woori and NH NongHyup, stood at 648 trillion won, up 3.06 trillion won from 644.94 trillion won at the end of last year. That represents 71.8 percent of the annual allowable increase of 4.26 trillion won.

"Demand for credit loans to invest in stocks remains strong, and appetite for real estate purchase financing is also significant," an official at one commercial bank said. "It is obvious that leaving the lending window wide open would cause loan balances to surge, so there is a genuine need to manage total lending volume proactively."

Financial regulators have been pressing banks hard to rein in household lending since last month, signaling that stronger measures would be unavoidable if growth does not slow. The government is also reportedly preparing new regulations to coincide with the announcement of a real estate tax reform package this month.