South Korea Sees Surge in Household Loans Despite Real Estate Restrictions
Despite stringent measures to curb household debt and housing prices, South Korean banks saw a significant rise in household loans in August.
Household LoansReal EstateMortgage LoansLoantovalue RatioJeonseReal EstateAug 31, 2025
In an effort to curb rising household debt and housing prices, authorities in late June imposed a 600 million-won cap on mortgage loans for property purchases in the capital region. Additionally, home-backed loans for multi-homeowners were suspended. Despite these measures, the growth in household loans picked up in August, primarily due to a rise in unsecured and other types of household loans.
The government believes that the latest restrictions have eased the market's overheating to some extent, but they are considering additional regulations for the real estate market. One such measure is tightening the loan-to-value (LTV) ratio, a key regulatory tool used to curb household loans by limiting the maximum amount homeowners can borrow based on the value of their collateral. Currently, the LTV ratio is set at 50 percent for anti-speculation areas in Seoul, but market watchers anticipate a tighter 40 percent ceiling.
Lee Eog-weon, the nominee for chairman of the Financial Services Commission, emphasized the need for continued monitoring of the housing market and taking additional measures when necessary. In a written statement submitted to parliament for his confirmation hearing, Lee stated, 'There are many analyses that the measures implemented on June 27 were successful in the short term amid rising household debt driven by mortgages in the greater Seoul area.' However, he also noted that 'only regulating loans can limit the policy's effectiveness.'
Lee added that the government needs to take 'comprehensive consideration' in light of the possibility that Seoul may seek to apply tightened curbs on loans for 'jeonse,' a unique Korean system where renters give landlords a large returnable deposit instead of paying monthly rent. 'We will monitor trends in the housing market and household loans and immediately implement measures currently under preparation when necessary,' Lee emphasized.
Meanwhile, the net interest margins of South Korea's top five banks approached the highest levels since 2022, when financial regulators made public disclosure mandatory. The wider gap appears to have been driven by the banks' reluctance to lower lending rates amid the government's tighter control of household debt, while deposit rates fell to the lowest levels in more than three years.
Frequently Asked Questions
What measures did South Korean authorities implement to curb household debt and housing prices?
South Korean authorities imposed a 600 million-won cap on mortgage loans for property purchases in the capital region and suspended home-backed loans for multi-homeowners.
What is the loan-to-value (LTV) ratio, and how does it affect the real estate market?
The loan-to-value (LTV) ratio is a regulatory tool that limits the maximum amount homeowners can borrow based on the value of their collateral. Tightening the LTV ratio can help curb household loans and cool down the real estate market.
What is 'jeonse,' and how might it be affected by new regulations?
Jeonse is a unique Korean system where renters give landlords a large returnable deposit instead of paying monthly rent. The government is considering applying tighter curbs on loans for jeonse to further regulate the housing market.
How have the net interest margins of South Korea's top banks been affected by the government's measures?
The net interest margins of South Korea's top five banks have approached the highest levels since 2022. This is due to the banks' reluctance to lower lending rates amid the government's tighter control of household debt, while deposit rates fell to the lowest levels in more than three years.
What is Lee Eog-weon's stance on the current housing market and household loans?
Lee Eog-weon, the nominee for chairman of the Financial Services Commission, believes that the measures implemented on June 27 were successful in the short term. However, he emphasizes the need for comprehensive consideration and immediate implementation of additional measures if necessary.
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