A customer is seen at a bank loan counter in Seoul on Aug. 5.YONHAP
A homebuyer who needed a mortgage loan in September finally succeeded last week in securing one from KakaoBank, an internet-only lender, after joining the daily rush to apply as soon as applications opened.
For a week, the homebuyer and their spouse woke up at 5:30 every morning, set up keyboard shortcuts and even checked their internet speed before attempting to submit a mortgage application.
“When I signed the deal early this year, I never thought getting a loan would be a problem,” the homebuyer said. “But as the final payment approached, commercial banks either stopped lending or offered rates that were far too high. I felt backed into a corner, so I joined the rush.”
Another borrower took out a personal loan up to the maximum amount availablein late July and left the money sitting in a bank account, despite having no immediate need for it.
Concerned that lending restrictions would tighten further in the second half of the year and make it impossible to borrow when the money was actually needed, the borrower stockpiled cash in advance.
“If I need to move or suddenly need cash and loans are unavailable, someone like me who can’t easily turn to family has nowhere else to go,” the borrower said. “I decided to borrow the money in advance even though I have to pay interest on it.”
ATMs in central Seoul on July 19.NEWS1
First-come, first served
Borrowing in Korea is increasingly becoming a first-come, first-served game.
Concerns are mounting over a potential so-called loan cliff as banks approach their lending limits under the government’s cap on the expansion of household debt.
What began as borrowers rushing to apply for loans as soon as they become available is now developing into a fear of missing out on loans. Essentially, FOMO is driving people to get credit they do not yet need out of fear that it may not be available later.
The result is a vicious cycle: Banks exceed their lending targets, triggering tighter restrictions, which in turn encourage borrowers to bring forward their demand for loans.
Outstanding household loans at Korea’s five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — excluding government-backed loans, stood at 650.38 trillion won ($460 billion) as of Aug. 6, according to financial industry sources on Monday.
The figure was up 5.4 trillion won from the end of last year, already exceeding the banks’ combined full-year growth target of 4.33 trillion won by more than 1 trillion won.
As commercial banks tighten lending, borrowers are increasingly turning to internet-only banks and nonbank financial institutions. As a result, household loan growth across the financial sector is also expected to exceed the government’s annual target of 1.5 percent.
The Financial Services Commission is considering excluding mortgage loans for new homes and those covering involuntary relocation from its household lending limits, but the proposal has drawn a lukewarm response from borrowers.
A loan counter at a bank in Seoul on Aug. 11NEWS1
History repeating itself
To many, the situation resembles what happened in 2021, when authorities tightened lending only to introduce exceptions after restrictions began hurting borrowers with genuine financing needs.
The government began managing overall household lending through explicit growth targets in 2021. With soaring property prices driving a rapid increase in household debt, financial authorities introduced measures aimed at strengthening household debt management and set a target of keeping annual household debt growth between 5 percent and 6 percent.
Actual household loan growth that year, however, reached 7.1 percent, exceeding the authorities’ target.
Banks responded by effectively shutting their lending windows in the second half of the year. This turned fears of a loan cliff into reality.
When homebuyers and tenants who had already signed purchase, presale or jeonse (lump sum payment) contracts faced the prospect of being unable to secure financing for mortgages, financial authorities excluded jeonse loans from the lending cap in the fourth quarter and allowed banks to continue providing mortgage loans.
The restrictions also produced a balloon effect, pushing borrowers unable to obtain bank loans toward higher-interest lenders such as savings banks, mutual finance companies and insurers.
Five years later, a similar pattern is emerging in 2026.
Borrowers with identical financial profiles can now receive different lending decisions depending simply on whether they apply early in the year or in the second half, creating a first-come, first-served lending system.
Banks have progressively tightened their standards as the year advances in an effort to stay within their annual household lending targets.
The contradiction is that borrowers’ incomes and repayment capacity may remain unchanged, yet their access to credit can depend on when they submit an application.
Bank of Korea Gov. Shin Hyun-song during a Monetary Policy Board meeting held in central Seoul on July 16BANK OF KOREA
Questions grow over lending caps
Concerns about the side effects of aggregate lending controls have also been raised within financial authorities.
Minutes from the Bank of Korea’s Monetary Policy Board meeting on Feb. 26 hinted at concerns among board members that while aggregate lending controls may be necessary as a short-term tool to curb an overheated housing market, they could also weaken the effects of benchmark interest rate cuts.
If the controls remain in place even after housing prices start to cool, banks may raise their lending spreads to stay within their assigned limits.
Questions have also been raised about the legal basis for the aggregate lending controls.
Rather than being explicitly prescribed by law or financial supervisory regulations, the system operates by having financial institutions submit annual lending targets in line with the authorities’ policy direction. Exceeding those targets can then be reflected in the following year’s lending limits or in regulatory inspections and supervision.
In effect, the system operates as administrative guidance. Critics argue that when a measure powerful enough to determine whether borrowers can obtain credit is implemented through nonbinding administrative guidance rather than laws or formal supervisory regulations, its legal foundation and predictability can be undermined.
Apartment complexes are seen from the Lotte World Tower in Songpa District, southern Seoul, on Aug. 4.NEWS1
Directly controlling the annual increase in household lending at individual financial institutions is relatively uncommon among major economies.
Japan introduced an aggregate lending restriction in 1990 that sought to keep growth in real estate lending below the growth rate of overall lending. The measure reduced property lending in the short term, but has also been cited as one of the factors that contributed to the subsequent collapse of Japan’s asset bubble and prolonged economic stagnation.
That experience has fueled calls for Korea to move away from directly restricting the overall volume of lending by financial institutions and instead manage credit primarily according to individual borrowers’ ability to repay, using measures such as the debt service ratio (DSR).
“There is a rationale behind the financial authorities’ long-term goal of reducing the household debt-to-GDP ratio to around 80 percent, but trying to bring it down too quickly over a short period is creating various difficulties for consumers,” said Seok Byoung-hoon, a professor of economics at Ewha Womans University.
“We need to move toward a system, as advanced economies have done, in which the amount a person can borrow is determined in proportion to the individual borrower’s repayment capacity, using measures such as the DSR.”
BY KIM DA-YOUNG [kim.jiye@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
