For Aaron, a 45-year old Canadian working as a university professor in Seoul, buying his own house in the city has been near the top of his bucket list.
But his plan for a dream house has been let down by local banks rejecting his applications for a credit loan. Despite his status as a full-time instructor at the Graduate School of Interpretation and Translation of Hankuk University of Foreign Studies for more than eight years, the banks have not been accommodating.
“For the first time in almost 18 years after I came here, I applied for a credit loan offered by Woori Bank last year to raise money to purchase an affordable starter home,” he said. “However, a bank clerk said I don’t qualify for the lending as my contract at HUFS was only for a year, saying foreigners could run away if they only had a one-year contract.“
His contract is renewed on a yearly basis, but he is classified as regular worker subject to the state’s employment insurance coverage. He earns an annual income of around 80 million won ($69,300).
“What the bank clerk said was not written in the information for the loan I had applied for. I was certainly qualified for the loan considering income and credit history. I think the major reason for the refusal was a stereotype of foreigners as being more risky to loan money to.”
The number of foreign residents in Asia’s fourth-largest economy surpassed 2.2 million at the end of 2020. However, a growing number of foreigners like Lonnie still face hurdles in receiving large-scale loans from banks to purchase a home.
In 2016, foreigners who took out home-backed loans from commercial banks, accounted for some 40 percent of around 100,000 non-Korean borrowers, but that dropped to 35 percent last year, according to data from the Korea Credit Information Services -- a panindustry body tasked with data preservation and protection.
The figure for those who received non-mortgage loans, on the other hand, increased from 34 percent to 41 percent during the given period. But most of them were in their 20s and 30s, and had been granted small loans of under 10 million won, a KCIS official said.
The risk of default and difficulties in credit scoring are major reasons local banks remain reluctant to approve lending for foreign residents as well as Koreans with foreign nationalities, experts say.
“It will vary depending on the bank’s internal regulations but in most cases, procedures regarding loan disbursement for foreigners are more complicated even though they have collateral. Citing a huge risk of leaving the country without notification and lack of identity information, major banks tend to avoid lending money to foreign customers,” said Cho Chul-min, a freelance loan consultant who previously worked for a commercial bank for more than 15 years.
He added that foreign-born citizens who gained citizenship through marriage can also find it difficult to go through the application process due to lacking Korean language skills.
The banks’ attitude runs counter to the legal framework to ensure foreign customers are not isolated in the loan market.
Current regulations on the supervision of banking business stipulate that financial authorities’ loan rules as well as their guidelines on banks’ operation should apply to both local residents and foreigners without discrimination, according to the policymaking Financial Services Commission.
“Given that the number of foreign customers is expected to show a continuous growth, local banks should step up efforts to strengthen a credit-scoring system for foreigners with the purpose of expanding lending services for them,” said Suh Jeong-ho, a senior research fellow at the Korea Institute of Finance.
“As for their language problems, the lenders can review dispatching bilingual employees specialized in consulting with foreigners to their offline branches.”
Meanwhile, increasing real estate speculation by some foreign investors has recently aroused negative public sentiment toward foreign nationals’ demand for credit loans.
The number of building transactions by foreigners last year stood at 21,048, up 18.5 percent from a year earlier, which was the largest figure since January 2006. Nearly 40 percent were buy-to-let purchases, according to data from the Korea Real Estate Board.
Market experts voiced concerns over possible xenophobia toward ordinary foreign borrowers for whom buying a house has been a lifelong goal.
“Just as locals did, foreigners took advantage of the ample liquidity triggered by expansionary fiscal and monetary policies to counter the COVID-19 crisis and went on a buying spree in the local property market earlier last year,” said Seo Jin-hyung, head of the Korea Real Estate Society.
“However, not all of them bought property with the hopes of reselling it at a higher price in the near future. Among them, a significant number of foreigners purchased apartments to live in by taking out as many loans as they could.”
By Choi Jae-hee (firstname.lastname@example.org