Unsecured loans rise after tightening on mortgages

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Unsecured loans rise after tightening on mortgages

Unsecured loans in Korea reached 100 trillion won ($93.4 billion) as of May, a ripple-effect of tighter regulations on mortgage lending.

According to the five major commercial banks in the country - KB Kookmin, Shinhan, Woori, KEB Hana and NH Nonghyup - the amount of unsecured loans issued to individuals came to 100.8 trillion won at the end of May this year, up 1.9 trillion won from a month earlier or about 1 percent.

In April, those loans rose by 1.1 trillion won compared to a month before, or 1 percent. As a result, May is the second consecutive month for such loans to have increased by over 1 trillion won, the first time in half a year.

While the demand for such loans increased, the issuing of mortgages fell.

The amount of newly issued mortgages stood at 2.2 trillion won in March. By April, that amount was slashed to 1.6 trillion won, a 30 percent fall. In May, only 1.2 trillion won worth of new mortgages were issued, a 25 percent decline.

An industry source explained that borrowers are relying on options such as credit lines, which allow a person to borrow up to an amount previously agreed upon with the lender, in order to finance home purchases after the government imposed measures to cool off the local housing market.

Starting last January, the government implemented a new debt-to-income ratio and lowered the loan-to-value ratio in evaluating a person’s ability to borrow real estate purchases.

As a result of the government tightening, the amount of apartment purchases fell in the country.

Data by the Ministry of Land, Infrastructure and Transport show that apartment purchases in April fell by 4.8 percent compared to a year earlier.

Borrowing to buy homes is likely to get tougher when the debt-service ratio evaluation, which is a tougher model than the previously used debt-to-income ratio model, is fully implemented on loan applications across the nation starting in October. Right now, the model is being tested by local commercial banks.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]
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