6,454 Cases Last Month, 24 Fewer Than Previous Month
"Impact of Mortgage Rate Cuts and Rising House Prices"
Whether the Decline in Voluntary Auctions Will Continue Remains to Be Seen
The number of court auction cases handed over by financial institutions in Seoul that failed to recover loan principal and interest has turned to a downward trend for the first time in 1 year and 7 months. Properties of those who invested in real estate by so-called Yeongkkeul (borrowing to the limit) and failed to repay the principal and interest were flooding the auction market, but the number of cases received in the auction market decreased last month. It seems that factors such as rising house prices and expectations of interest rate cuts had an impact, but opinions suggest that it remains to be seen whether this phenomenon will become a trend.
According to the Court Registry Information Plaza on the 11th, the number of valid voluntary auction commencement registration cases in Seoul last month was counted at 6,454. This figure is based on collective buildings such as apartments, officetels, and multi-family houses. Compared to September (6,478 cases), it decreased by 24 cases. The upward trend that had continued for 19 consecutive months since March 2023 (3,686 cases) was broken.
Voluntary auction refers to the procedure in which a creditor hands over real estate to a court auction when a debtor who borrowed money secured by a house is overdue on principal and interest for more than three months. Unlike compulsory auctions, it can be executed immediately without a separate trial. The creditor is usually the financial institution that provided the loan. The number of voluntary auction applications has continued to increase as the so-called ‘Yeongkkeul’ group, who maximized mortgage loans during the apartment price rise period and purchased apartments, failed to repay their loans on time due to high interest rates.
The decrease in the number of voluntary auction cases is largely due to the decline in loan interest rates. Joo Hyun Lee, a specialist at Gigi Auction, a real estate auction and public sale data company, explained, "Generally, when loan interest rates rise, the number of voluntary auction applications tends to increase," adding, "This year, with expectations of a base rate cut, especially loan interest rates applying variable rates have decreased, leading to a reduction in voluntary auctions." According to the Bank of Korea, the mortgage loan interest rate of deposit banks (based on balance) has steadily decreased every month since January this year (4.32%) and recorded 4.19% in September.
The impact of rising house prices centered in Seoul earlier this year also influenced the decrease in auction properties. This means that the number of properties going to auction decreased as borrowers had opportunities to dispose of real estate whose prices had risen as collateral.
However, the industry believes that it is necessary to observe whether this decrease in voluntary auction applications will continue. Although the Bank of Korea lowered the base rate by 0.25 percentage points from 3.5% to 3.25% last month, it is uncertain whether this will lead to an actual decline in loan interest rates. Financial authorities continue to tighten household loans, and expectations of interest rate hikes have already been factored into loan interest rates. Cases where creditors of voluntary auction properties are second- or third-tier financial institutions such as savings banks, capital companies, and loan companies increased by 166 cases to 514 cases last month (based on the metropolitan area) compared to the previous month (348 cases).
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