Yeongkkeuljok "Must Sell House Due to Interest Burden"... 'Loan Interest Rate 4%' Highest in 10 Years

Loan Interest Rates Rise, Monthly Interest Costs Increase by Tens of Thousands of Won

Yeongkkeuljok to Face Greater Interest Burden Ahead

Real estate stock photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Sim Nayoung] Loan interest rates in the 4% range have become the norm. Just a year ago, most financial consumers were benefiting from rates in the 2% range, so this represents a 2 percentage point (P) increase. It has become common for monthly interest costs to rise by tens of thousands of won for mortgage borrowers or jeonse loan borrowers who have borrowed hundreds of millions of won from banks.

The case of Choi Eun-ho (37), who lives in Gangbuk-gu, Seoul, illustrates this well. Two years ago, when Choi purchased an apartment, he took out a 400 million won mortgage loan with a variable interest rate. At that time, the interest rate was 2.71%, and the monthly interest cost was 900,000 won. However, last month, the bank notified Choi that the interest rate had risen to 4.72%. The monthly interest has now soared to 1,480,000 won, increasing by about 600,000 won in just two years. Choi lamented, "After the repayment date on the first of every month passes, I’m scared to even look at my bank account balance."

"I pushed myself to buy my own home, but the interest is unbearable. Before the house price drops further, I want to sell the apartment to make a capital gain and then move to a jeonse lease for now. If the house price falls more, I can buy an apartment again. But my wife opposes this. She says, 'One house is a safe asset,' and suggests we cut living expenses even more. These days, we argue about the house all the time. We have a child, and we can’t just live on ramen noodles."

In fact, real estate industry analysis shows that young "Yeongkkeul" (all-in borrowing) borrowers feeling the burden of rising interest rates are increasingly selling their homes, especially in the outskirts of Seoul. According to the Korea Real Estate Board, the proportion of sellers aged 30 or younger among Seoul’s collective housing sales increased for four consecutive months, from 13.31% in March to 16.04% in July this year.

According to the Bank of Korea Economic Statistics System, the proportion of new household loans from domestic deposit banks in July by interest rate level showed that loans with interest rates between 4% and 5% accounted for the highest share at 44.7%. The share of loans in the 4% range was the highest in 9 years and 6 months since February 2013 (26.9%). Loans with interest rates between 3% and 4% followed at 32.5%, while those below 2% accounted for only 6.5%.

Actual market bank loan interest rates are even higher than these figures. As of the 7th, the variable interest rates for mortgage loans at the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) range from the low 4% to the high 6% range. Mixed rates also exceeded 6%, ranging from 4.6% to 6.35%. A representative from a commercial bank explained, "The Bank of Korea raised the base rate on the 25th of last month, and shortly after, the U.S. Federal Reserve expressed its intention to raise rates. Since last week, the interest rates on financial bonds that banks use to raise loan funds have risen sharply, causing loan interest rates to increase rapidly."

Deposit interest rates are also on the rise. In July, the proportion of new fixed deposits at domestic deposit banks with interest rates between 3% and 4% was the highest at 45%. This was followed by 2% to 3% at 41.7%, and below 2% at 13.3%. Compared to a year ago, when deposits with interest rates below 2% accounted for 99.9%, the share of deposits with 3% to 4% interest rates has increased significantly.