Mortgage Loan Interest Rates Fall Despite Authorities' Efforts... Challenges in Controlling Household Debt

To slow down the increase in household loans, commercial banks are consecutively raising mortgage loan interest rates. On the 3rd, a loan information board was posted at a commercial bank branch in Euljiro, Jung-gu, Seoul. Photo by Jo Yongjun jun21@

Recently, while financial authorities have urged banks to manage household loans, a decline in market interest rates has been observed, with mortgage loan rates actually falling, making debt management challenging.

According to the financial sector on the 5th, mortgage loan rates at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) are on a downward trend. Shinhan Bank's mortgage loan rate floor, which was at a minimum of 2.94% per annum, has dropped to 2.9% per annum. Woori Bank's rate fell from 3.15% to 3.10%, and NH Nonghyup Bank's rate decreased from 3.36% to 3.34% per annum.

Last month, household loans at commercial banks reached 708 trillion won, increasing by more than 5 trillion won in just one month. This marks the largest increase in about three years. In response, financial authorities requested banks to 'refrain from expanding loans.' They also ordered banks to include policy loans and jeonse loans in the Debt Service Ratio (DSR) calculations. Consequently, KB Kookmin Bank raised fixed and variable mortgage loan rates by 0.13 percentage points each, and Hana Bank reduced the discount rate on household mortgage loans by up to 0.20 percentage points, taking preemptive risk management measures.

Despite pressure from authorities, banks are increasing additional interest rates or tightening loan screenings; however, due to market expectations of a base interest rate cut, the decline in financial bond yields is creating an environment where mortgage loan rates are also falling.

Moreover, financial authorities have shown a passive stance in implementing loan suppression measures, such as postponing the second phase of the stress DSR regulation scheduled for July by two months, raising questions about policy consistency. To make matters worse, with Seoul apartment transactions expected to exceed 5,000 units this month for the first time in 3 years and 2 months, concerns are emerging that it may become difficult to control both household debt and real estate prices.