"Even with Interest Rates in the 4% Range, People Buy Homes"…Why Household Loans Increase Despite Rising Rates

Focus on Interest Rates in the 4% Range... Slight Increase Compared to Last Month
Demand for Mortgage Loans Continues to Rise
Bank Report: "Housing Market Maintains Limited Recovery"

On the 14th, amid the ongoing decline in real estate prices and a transaction freeze, apartment listings with price tags are displayed at a real estate-dense shopping area in Songpa-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Most people who bought new homes last month took out mortgage loans with interest rates in the 4% range. Although the interest rate level rose slightly compared to the previous month, household debt continues to increase regardless.

According to the Korea Federation of Banks on the 7th, the average mortgage loan interest rate based on new loan amounts last month at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) and internet banks handling mortgage loans (KakaoBank, K Bank) was 4.42%. This is slightly higher than the previous month’s 4.37%.

Looking at the mortgage loan interest rate levels across all domestic deposit banks, the upward trend in interest rates is even more evident. According to the Bank of Korea Economic Statistics System, as of September, the proportion of mortgage loans with interest rates between 4% and 5% accounted for 67.6% of the total new mortgage loan amount. This was 60.0% in May and has gradually increased since then. During the same period, the share of loans with interest rates between 3% and 4% decreased from 13.3% (May) to 6.3% (September).

On the other hand, mortgage loans at domestic deposit banks increased. Comparing the end of April (KRW 640.7331 trillion) and the end of August (KRW 655.3599 trillion), there was an increase of KRW 14.6268 trillion. The upward trend in household loans continued through last month. The outstanding household loans at the five major banks increased by KRW 3.6825 trillion in October alone. The main reason for the increase in household loans is the rise in mortgage loans. The outstanding mortgage loans at these banks at the end of last month were KRW 521.2264 trillion, up KRW 4.1406 trillion from the previous month’s KRW 517.0858 trillion.

A representative from a commercial bank said, "Although the financial authorities abolished the special 50-year term Bogeumjari Loan last month and implemented interest rate hikes, it has been insufficient to curb the increase in household debt." Reports released by banks also emphasize the recovery trend in housing prices. "Housing sale prices are rising, with the increase spreading from the metropolitan area to non-metropolitan regions. Although the potential for further increases is limited, the housing market is expected to continue its recovery trend for the time being." (October 17, KB Financial Group Management Research Institute) "Due to the high interest rate environment, the increase in transaction volume is limited, but mortgage loan demand will rise mainly in the metropolitan area where there is significant potential for price increases." (October 31, Hana Financial Management Research Institute)

An official from the financial authorities said, "As the special Bogeumjari Loan was suppressed, demand for mortgage loans through other channels such as Didimdol Loans is increasing," adding, "The political circles also feel burdened about implementing policies that would significantly lower or raise housing prices ahead of the general elections, and if housing prices remain at the current level, mortgage loan demand is unlikely to easily decline."