With the government tightening household lending, the so-called “lending refugees” are cropping up across the country. As the financial sector reduced loans for intermediate payments and jeonse deposits for apartments, ordinary people have no other options but resort to private loans. Due to heightened threshold for bank loans, much of the demand has driven to non-bank financial institutions, and the subsequent government’s pressure on non-bank financial institutions in turn has led to a balloon effect, where the demand has now shifted to private lenders. The government is planning to announce additional measures to curb lending, raising the likelihood of more damage done to victims by illegal lenders.
Recruiting the tenants for public housing in Geomdan, Incheon, the Korea Land and Housing Corporation (LH) recently announced that those who signed the contract will have to pay intermediate payments on their own in case a group loan is not possible. This means that house buyers will have to find cash on their own as loans for intermediate payments are likely to be blocked. There is no way that ordinary people, who have been supplied with public housing with much difficulty, can find hundreds of millions of won without the help of bank loans.
NH Bank has temporarily suspended both group and jeonse loans since the end of August and other banks have also begun to reduce their loan limit since Wednesday. Due to pressure from the Financial Services Commission on non-bank financial institutions, investment banks and card firms are also reducing their loan limits. Even private lenders have strengthened their screening process, giving a loan to only one out of 10 people. Ordinary people are on the cusp of being excluded from institutional financial system.
The government is reportedly reviewing measures to further tighten jeonse loans as a way to address household debt. The measures include reducing Korea Housing Finance Corporation (HF)’s jeonse loan guarantees and including jeonse loans when calculating debt service ratio (DSR). If this happens, some tenants could be forced to take private loans. The Fair Gyeonggi Special Judicial Police squad investigated illegal loans in mid-July and found that there were some cases, where private lenders received more than 3,000 percent of annual interest.
It is absurd that the government, which has a national debt of more than 1,000 trillion won, is trying to tighten loans for ordinary people. To be sure, household debt should be reduced, but the burden cannot fall on the shoulders of ordinary people. The government should come up with detailed loan standards so that ordinary people can take out loans if they have actual demand. In addition, the government should crack down on illegal lenders, who take advantage of the current situation.