Rising Household Debt Amid Soaring Home Prices... 16 Trillion KRW Increase in Mortgage Loans in Q2

Q2 Household Credit Announcement... Balance 1,896.2 Trillion KRW
Household Loans Up 13.5 Trillion, Sales Credit Up 0.3 Trillion
Housing Transactions Increase, Mortgage Loans Up 16 Trillion KRW

Household credit (debt) in the second quarter of this year increased by 13.8 trillion won compared to the previous quarter, setting a new record for the largest household debt ever. This was due to an increase in household loans, mainly mortgage loans, as housing sales transactions increased recently, especially in the Seoul metropolitan area, along with a slight increase in sales credit, which is credit card payments.

[Image source=Yonhap News]

According to the '2024 Q2 Household Credit (Provisional)' report released by the Bank of Korea on the 20th, the household credit balance at the end of the second quarter reached 1,896.2 trillion won, up 13.8 trillion won (0.7%) from the end of the previous quarter. Household credit had slightly decreased by 3.1 trillion won (-0.2%) in the first quarter but turned to an increase, setting a record high in the second quarter. Compared to the same period last year, it increased by 34.9 trillion won (1.9%), showing an upward trend for four consecutive quarters since the third quarter of last year.

Kim Minsu, head of the Financial Statistics Team at the Economic Statistics Bureau of the Bank of Korea, explained, "The government and the Bank of Korea aim not to drastically reduce the size of household debt itself but to gradually slow its growth rate within the nominal Gross Domestic Product (GDP) growth rate." He added, "The increase in household credit in the second quarter is not high compared to the quarterly average of about 20 trillion won from 2010 to 2019."

Household credit refers to the total debt of households, combining loans (household loans) received from financial institutions such as banks and insurance companies with the amount purchased on credit cards and other forms of sales credit.

The household loan balance stood at 1,780 trillion won, increasing by 13.5 trillion won from the previous quarter. This was due to an expansion in the increase of mortgage loans and a reduction in the decrease of other loans.

Mortgage loans increased by 16 trillion won, expanding from 12.4 trillion won in the first quarter, as housing sales transactions increased mainly in the Seoul metropolitan area.

Other loans saw a reduced decrease (-13.2 trillion won to -2.5 trillion won) as seasonal factors such as loan repayments using bonuses disappeared during the first quarter.

By institution, the increase in deposit banks expanded significantly from 3.2 trillion won in the first quarter to 17.3 trillion won. Non-bank deposit-taking institutions saw a reduced decrease (-8 trillion won to -3.9 trillion won). Other financial institutions also saw a reduced increase (4 trillion won to 1 billion won).

The balance of sales credit (credit card payments) in the second quarter was 116.2 trillion won, increasing by 300 billion won from the end of the previous quarter. Sales credit had increased by 2.8 trillion won in the third quarter and 1.5 trillion won in the fourth quarter of last year, decreased by 2.3 trillion won in the first quarter of this year, and then turned to an increase as credit card usage expanded.

Regarding the outlook for household loans, Kim said, "Household loans have been within the range of nominal GDP growth rate until the first half of this year," but added, "However, since housing sales transactions usually affect with a lag of 2 to 3 months in the third quarter, we need to watch carefully with caution."

He continued, "Financial authorities and banks have strengthened household loan management, and the second phase of the Debt Service Ratio (DSR) stress test is scheduled to be implemented from September, so we need to first observe the policy effects."