The stricter qualifications required to secure a mortgage have sparked debate over the South Korean government’s move to address the country’s runaway household debt issue, with critics claiming the measure would only hurt the working-class people.

According to the state-run Korea Housing Finance Corporation (HF) on Tuesday, qualifications for its flagship mortgage programs called “Bogeumjari Loan” will be tightened for the rest of the year, starting Wednesday, and it is considering similar measures for “Jeokgyeok Loan.” 


The Bogeumjari Loan is a policy-backed mortgage program launched in 2005 for individuals who have no history of owning a house, or who currently own one. Regardless of income size, a qualified applicant was able to borrow up to 70 percent of a housing price. The maximum value of a house allowed for borrowing was 900 million won, and in that case, a borrower could get up to 500 million won in loans. The borrowing rates were between 2.5 percent to 2.7 percent as of this month, with 10 to 30 years of maturities.

The Jeokgyeok Loan was introduced in 2012 and is the country’s first mortgage-backed securities program for up to 900 million won worth houses with borrowing rates being adjusted every five years.

The HF announced last Friday that it will scale back the program to those planning to purchase a house priced up to 300 million won and put an upper cap of 100 million won on lendable loans.

The corporation also decided to restrict applicants to those who earn less than 60 million won a year.

Also, while the mortgage was issued to not only those who were planning to purchase a house, but also those looking to pay back other mortgage loans, the institution will start limiting the criteria to those borrowing for house purchase purposes only.

Commercial banks interpreted the announcement as a temporary halt of the program, to last until the end of this year, in line with the ongoing government efforts to tighten borrowers’ qualifications in a bid to contain the rapid growth in the household debt.

“We see that the program is de facto halted, since we ran out of the allocated limit for the third quarter, and we are not given any for the fourth quarter,” said a spokesman at KEB Hana Bank, the country’s largest commercial bank by asset.

Each bank is given 2 trillion won to 3 trillion won for the mortgage program, guaranteed by the HF, every quarter.

“We haven’t yet received guidelines to enhance qualifications for other bank loans from the Financial Services Commission,” the spokesman said.

In August, the FSC and related ministries announced a package of measures to manage the household debt growth, including restricting reckless growth of collective loans issued to applicants for new apartments by tightening borrowers’ qualifications.

The measures were not considered enough by the market, upon which FSC Chief Yim Jong-yong pledged in September that his commission will force financial institutions to implement tougher qualification screenings on borrowers as early as November. The enhanced screenings include introducing a new gauge of individuals’ financial liabilities, called “Debt Service Ratio,” measuring one’s total financial capabilities to pay back different kinds of debt including credit card payments.

The FSC made a public statement that the halt of Bogeumjari Loan is not related to its debt management plans.

“The FSC’s stance remains that there will be no artificial management of the total debt, considering the impact on the real estate market,” said an FSC official.

The HF, meanwhile, said that the scaling back of the mortgage program is not part of government plans.

“The initial guarantee limit for the program was 10 trillion won, but it ran out too quickly, especially in August,” said a PR officer at the HF. “Even after increasing the limit to 16 trillion won, we thought the mortgage applications were growing too sharply, and judged that there needs to be some adjustment.”

Out of the planned 16 trillion won, 14.5 trillion won has already been issued to borrowers, according to the corporation.

The corporation is not considering suspending the Jeokgyeok Loan at all, the PR officer added, saying that it is mulling over measures to raise the total limit. About 15 trillion won in loans was issued as of this month, nearly reaching the 16 trillion won limit.

The government’s August measures came based on its judgment that the country’s housing market is being overly heated amid the persisting low interest rate environment, which is a major culprit behind the current household debt issue.

According to the Ministry of Land, Infrastructure and Transport on Tuesday, the country’s home transactions continued to rise to 91,612 last month, up 6.3 percent from a year earlier.

September marked the second consecutive month of increase following a 13.6 percent on-year plunge in July. In August, home transactions gained 4.3 percent on-year to 98,130.

By Song Su-hyun (song@heraldcorp.com)