Gov‘t to curb housing market overheating and household loans with tighter bank regulations

Jun 19, 2025, 09:52 am

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Apartment prices in Seoul continue to set new highs, surpassing previous peaks seen during the 2020–2021 real estate boom, dubbed the “crazy housing price” period. According to weekly data from the Korea Real Estate Board as of June 15, apartment prices are rising in seven Seoul districts: Gangnam, Seocho, Songpa, Mapo, Yongsan, Seongdong, and Yangcheon. Photo taken on June 16 shows the Seoul skyline from Namsan. / Source: Yonhap News

The Lee Jae-myung administration is considering imposing new banking regulations that would require financial institutions to set aside additional capital buffers, aiming to cool the overheated real estate market and curb the concentration of household loans. The underlying rationale is that by raising capital requirements for household lending, banks will scale back mortgage lending, which in turn would ease housing market pressure.

To discourage excessive mortgage lending and redirect credit toward corporate financing, the government is also considering raising risk weights applied to home loans.

According to a report titled “Strategy for the Real Growth of Korea” released by the Presidential Policy Planning Committee on June 18, the administration is exploring these measures to fulfill President Lee’s campaign pledge to stabilize the overall volume of household debt.

The committee specifically suggested the possible introduction of sectoral countercyclical capital buffers (SCCyB) and sectoral systemic risk buffers (sSyRB). Both systems would mandate financial institutions to hold more capital when household loans surge or when the real estate market overheats.

“The financial authorities had already announced plans in 2018 to introduce a countercyclical capital buffer for the household sector, but the measure has yet to be implemented,” the committee noted.

It also cited the International Monetary Fund (IMF), which recommended in its April 2020 Financial Sector Assessment Program (FSAP) report that Korea adopt such buffers for both secured and unsecured household loans within one to two years.

In addition, the committee proposed increasing the risk weight applied to mortgage loans to prompt banks to reduce new mortgage issuances.

“The average risk weight for mortgage loans at domestic banks is about 15%, whereas countries like Hong Kong and Sweden have raised the floor to 25%,” the report stated. “It is necessary to determine whether such adjustments should apply only to newly issued mortgages or to existing ones as well.”

#housing market #household loan #bank regulation