'High Interest Rates That Can't Prevent Home Auction Crisis' Mortgage Loan Delinquency Doubles in One Year

Last Year’s Mortgage Loan Delinquency Amount 1.02 Trillion
Savings Banks Show Highest Growth Rate
"Stronger Supervision Needed for Soundness Management"

The accumulated interest burden from high interest rates is now becoming prominent in mortgage loans as well. The delinquency rate of mortgage loans, which accounts for a large portion of household loans, has increased by more than 50% over the past year, raising concerns about financial sector instability.

According to data submitted by the Financial Supervisory Service to Yang Jeong-sook, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, on the 27th, the delinquent amount of mortgage loans last year was 1.002 trillion KRW. This represents a 54.7% increase compared to the previous year (647.7 billion KRW). The delinquent amount of mortgage loans increased to 1.0892 trillion KRW in 2018 and 1.2411 trillion KRW in 2019, then declined from 917.1 billion KRW in 2020. The delinquency rates over the past five years were 0.24% in 2018, 0.25% in 2019, 0.17% in 2020, 0.12% in 2021, and 0.18% in 2022.

By financial sector, the five major commercial banks had the highest delinquent amount last year at 774 billion KRW (a 56.4% increase), reflecting that mortgage loans are their main product. Savings banks had a delinquent amount of 28.9 billion KRW last year, which was not large compared to other sectors, but their growth rate was the highest at 87.8%. This is attributed to higher loan interest rates compared to commercial banks and a higher proportion of medium- and low-credit borrowers, resulting in weaker repayment ability. Insurance companies recorded 129.1 billion KRW (a 67.9% increase), and specialized credit finance companies had 69.9 billion KRW (a 15.4% increase).

The sharp rise in mortgage loan delinquencies indicates that the household crisis due to interest rate hikes is becoming more pronounced. Since mortgage loans involve the risk of the borrower’s home being auctioned off in case of delinquency, borrowers tend to avoid falling behind on payments.

Mortgage loan balances have continued to rise due to the recent years’ surge in real estate prices. The balance increased from 458.4285 trillion KRW in 2018 to 487.0783 trillion KRW in 2019, surpassed 500 trillion KRW at 526.4477 trillion KRW in 2020, and reached 560.4494 trillion KRW in 2021 and 569.8333 trillion KRW in 2022. If high interest rates persist, the delinquency rate is likely to increase further.

Signs of crisis due to interest burden are also appearing in unsecured loans. As of the end of last year, the delinquent amount and delinquency rate of unsecured loans reached record highs of 2.573 trillion KRW and 1.52%, respectively. These figures had decreased from 1.7322 trillion KRW (1.33%) in 2018, 1.5299 trillion KRW (1.07%) in 2019, and 1.5344 trillion KRW (0.89%) in 2020, but rose again to 1.9143 trillion KRW (1.02%) in 2021.

Rep. Yang said, “The significant increase in mortgage and unsecured loan delinquencies last year could ignite financial sector instability,” and urged, “Financial authorities should strengthen soundness supervision of credit card companies and savings banks whose delinquency rates exceed 4-5%.” She added, “Unsecured loans require special management because losses from defaults must be borne entirely by the financial sector due to the lack of collateral.”