[Base Interest Rate 3%] "Let's Switch Savings" "Might as Well Sell the House"... Soaring Interest Rates, Changing Lifestyles

On the 12th, Bank of Korea Executes Big Step Raising Base Interest Rate to 3%
Additional Commercial Bank Rate Hikes Expected Starting Next Week

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] Office worker Eunji Lee (41) plans to cancel her monthly 500,000 KRW regular savings account next week, which she started in August. Lee said, "I signed up for a product at a commercial bank offering an annual interest rate of 3.3%. At the time, I thought it was a decent rate, but seeing the interest rates these days, I feel I need to switch before it's too late." She added, "A friend who works at a bank told me that if the Bank of Korea raises the base rate on the 12th, the savings interest rates will likely increase around next week, so I'm waiting."

Choi Eunho (37), who lives in Gangbuk-gu, Seoul, took out a 400 million KRW variable-rate mortgage loan two years ago when buying an apartment. At that time, the interest rate was 2.71%, with a monthly interest cost of 900,000 KRW, but the rate has since risen to 4.72%, pushing the monthly interest to 1,480,000 KRW. Choi said, "I borrowed everything I could to buy my home, but now the interest is unbearable." He added, "Before the housing prices drop further, I plan to sell the apartment to realize capital gains, move to a jeonse (long-term deposit lease), and if prices fall more, buy an apartment again."

Additional Interest Rate Hikes at Commercial Banks Next Week Confirmed
Savings Account Holders Face Dilemma on Where to Switch

On the 12th, the Bank of Korea implemented a big step by raising the base interest rate to 3% (a 0.5 percentage point increase at once), making further interest rate hikes at commercial banks certain. As of the 11th, the savings and deposit interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) are around 4-5%, and some mortgage loan interest rates have exceeded 7%. A commercial bank official said, "This level of interest rates will become the norm following the base rate hike," adding, "Starting as early as tomorrow, we expect to see changes in the leading digits of interest rates for savings and loan products."

As the savings and deposit rates at the five major banks rise daily, consumer behavior is also changing. Instead of just signing up for savings products, many are continuously switching to banks offering higher rates. A financial industry official explained, "Each bank has different interest rates for early termination. During this period of rapid rate hikes, consumers might switch to another bank's savings product, so it's advisable to check if the early termination interest is higher compared to others."

As of the 11th, among the five major banks' fixed deposit products, Woori Bank's WON Plus Deposit offers the highest interest rate at 4.54% per annum. Among installment savings, Shinhan Bank's Sae Hope Savings (5.5% per annum) and Hana Bank's Nae Jip Marryeon Double Up Savings (5.5%) offer the highest rates.

Young 'Yeongkkeul' Borrowers Put Homes on Market, Monthly Renters Increase
Credit Loan Interest Nears 7%

Switching savings accounts is a happy dilemma for consumers, but rising loan interest rates are a national headache. Especially, the 'Yeongkkeul' borrowers?those who borrowed to the limit?have become 'interest poor' due to soaring rates. As of the 11th, the mortgage loan interest rates at the five major banks are 4.37-6.79% for variable rates that change every six months, and 4.89-7.08% for fixed rates over five years.

With housing prices declining under the new government, more young people are choosing to sell quickly. According to the Korea Real Estate Board and others, the proportion of sellers aged 30 or younger among Seoul's collective housing sellers has increased for four consecutive months: 13.31% in March, 14.66% in April, 14.19% in May, 14.28% in June, and 16.04% in July.

As jeonse loan interest rates rise, more people are signing monthly rent contracts even for small apartments in Seoul. According to real estate information provider Economy Man Lab's aggregation of the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system, from January to September, there were 85,506 lease transactions for small apartments in Seoul, of which 39,891 involved monthly rent? the highest since the Ministry began compiling related statistics in 2011 (January to September basis).

Interest rates on credit loans at commercial banks are also approaching the 7% mark. The upper limit for six-month maturity credit loans at the five major banks has surpassed 6%, and the upper limit for one-year maturity products has risen to 6.94%.