For Lonnie, a 45-year-old Canadian who works as a professional English teacher in Seoul, buying his own house in the city was high on his wish list.

However, his plan for a dream home was disappointed by the local banks, which turned down his loan applications. Despite his status as a full-time teacher in the Graduate School of Interpreting and Translation at Hankuk University of Foreign Studies for more than eight years, the banks have not been accommodating.

"For the first time in nearly 18 years after coming here, I applied for a loan from Woori Bank last year to raise funds to buy an affordable starter home," he said. "However, one bank clerk said I did not qualify for lending because my contract with HUFS was only for one year and said foreigners could run away if they only had a one-year contract."

His contract is renewed annually, but he is considered a regular employee covered by state unemployment insurance. He earns around 80 million won ($ 69,300) in annual income.

"What the bank clerk said wasn't in the information on the loan I applied for. I was certainly eligible for the loan based on my income and credit history. I think the main reason for the rejection was a stereotype that foreigners are riskier to lend money. "

The number of foreign residents in Asia's fourth largest economy exceeded 2.2 million at the end of 2020. However, a growing number of foreigners like Lonnie are still facing major hurdles in obtaining large home loans from banks.

In 2016, foreigners who had taken out domestic loans from commercial banks made up about 40 percent of around 100,000 non-Korean borrowers, but according to data from Korea Credit Information Services – a pan industry – that figure fell to 35 percent last year body entrusted with data retention and backup.

In contrast, the number of those who received non-mortgage loans rose from 34 percent to 41 percent in the period indicated. But most of them were between 20 and 30 years old and had received small loans of less than 10 million won, a KCIS official said.

According to experts, the risk of default and difficulties with credit rating are the main reasons why local banks remain reluctant to approve loans for foreign residents as well as Koreans of foreign nationality.

"It depends on the internal rules of the bank, but in most cases the loan disbursement procedures for foreigners are more complicated even though they have collateral. Given the enormous risk of leaving the country without notification and missing identity information, large banks tend to lend money to overseas clients, "said Cho Chul-min, a freelance credit advisor who previously worked for a commercial bank for over 15 years.

He added that foreign-born citizens who acquired citizenship through marriage may also have difficulty going through the application process due to a lack of Korean language skills.

The banks' stance is against the legal framework to ensure that foreign customers are not isolated in the credit market.

The current regulations for the supervision of the banking business provide that the credit regulations of the tax authorities as well as their guidelines for the operation of banks should apply to both locals and foreigners without discrimination, according to the Financial Services Commission.

"As the number of overseas customers is expected to grow steadily, local banks should step up their efforts to strengthen a credit rating system for foreigners to expand lending to them," said Suh Jeong-ho, senior research fellow at the Korea Institute of Finance.

"As far as their language problems are concerned, lenders can check whether they are sending bilingual staff who specialize in advising foreigners to their offline branches."

Meanwhile, the increasing real estate speculation by some foreign investors recently has sparked negative public sentiment towards foreign citizens' demand for credit.

The number of foreign construction transactions last year was 21,048, 18.5 percent more than a year earlier, the highest since January 2006. Nearly 40 percent were buy-to-rent, according to data from the Korea Real Estate Board.

Market experts raised concerns about possible xenophobia towards common foreign borrowers for whom buying a home was a lifelong goal.

"Just like locals, foreigners took advantage of the abundant liquidity generated by expansive fiscal and monetary policies to counter the COVID-19 crisis and went on a buying spree in the local real estate market early last year," said Seo Jin-hyung, Head the Korean Real Estate Company.

"However, not all properties bought in the hopes of reselling them at a higher price in the near future. Among them, a significant number of foreigners bought apartments to live in by taking out as much credit as possible. "

By Choi Jae-hee (cjh@heraldcorp.com)

source https://seapointrealtors.com/2021/07/27/foreigners-in-south-korea-struggle-to-buy-house/

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