Mortgage Rates Fall Below 4% for the First Time in 7 Months
Loan-to-Deposit Interest Rate Spread Narrows to 1.48%
The interest rates on mortgage loans handled by banks have fallen for three consecutive months, dropping below an average of 4%. This is the first time in seven months since September of last year that rates have entered the 3% range.
As lending rates, including mortgage loans, have declined more sharply than deposit rates such as savings and time deposits, the loan-to-deposit interest rate spread (lending rate minus deposit rate) has also narrowed for the first time in eight months.
According to the weighted average interest rates of financial institutions for April, announced by the Bank of Korea on May 27, the interest rate on new mortgage loans at deposit banks last month was 3.98% per annum, down 0.19 percentage points from the previous month.
The mortgage loan rate had risen to 4.27% in January this year but has been on a downward trend for three consecutive months since February. Specifically, the fixed-rate mortgage loan rate (3.96%) fell by 0.19 percentage points, while the variable-rate mortgage loan rate (4.12%) decreased by 0.13 percentage points.
Kim Minsu, head of the Financial Statistics Team 1 at the Bank of Korea's Economic Statistics Department, explained, "The decline in benchmark rates reflects market expectations for a base rate cut and the possibility of further cuts. In the case of mortgage loans, long-term market rates, such as the five-year bank bond rate, which serve as benchmark rates for fixed-rate mortgages, fell relatively sharply last month."
Household loans, including mortgage loans, dropped to 4.36%, a decrease of 0.15 percentage points from the previous month. As benchmark rates fell, jeonse loan rates also dropped by 0.18 percentage points to 3.81%, and general credit loan rates fell sharply by 0.2 percentage points to 5.28%. This marks a continuous decline for five consecutive months since December of last year.
Corporate loan rates fell to 4.14% per annum, down 0.18 percentage points from the previous month, as short-term market rates such as the 91-day Certificate of Deposit (CD) rate and short-term bank bond rates declined. While rates for both large corporations and small and medium-sized enterprises (SMEs) fell, the rate for large corporations dropped by 0.28 percentage points to 4.04%, whereas the rate for SMEs decreased only by 0.07 percentage points to 4.36%. The decline in large corporate loan rates is the largest in 14 years since April 2011 (-0.32 percentage points).
Kim added, "This was influenced by the decline in short-term market rates for working capital loans and the implementation of low-interest policy funds to support facility investment."
The interest rate on deposit-type savings products (based on new transactions) was recorded at 2.71%, a decrease of 0.13 percentage points from the previous month, as time deposit rates fell. This marks a continuous decline for seven consecutive months since October of last year (3.37%). Specifically, the interest rate on pure savings deposits, mainly time deposits, fell by 0.12 percentage points to 2.71% per annum. The rate on market-type financial products, mainly financial bonds, dropped by 0.25 percentage points to 2.69%.
The loan-to-deposit interest rate spread (based on new transactions) narrowed by 0.04 percentage points from the previous month to 1.48 percentage points. This is the first time in eight months since September of last year (1.22 percentage points) that the gap has slightly narrowed. The balance-based loan-to-deposit spread also narrowed by 0.04 percentage points from the previous month to 2.21 percentage points. However, Kim noted, "Whether this narrowing trend will continue depends on the direction of market rates and the movement of benchmark rates."
The proportion of fixed-rate household loans was 56.7%, down 1.2 percentage points from the previous month, mainly due to a decrease in fixed-rate jeonse loans. The proportion of fixed-rate mortgages among mortgage loans rose by 1.3 percentage points to 89.5%.
Meanwhile, among non-bank financial institutions, deposit rates at credit unions (-0.08 percentage points) and Saemaeul Geumgo (-0.09 percentage points) declined, while mutual savings banks and mutual finance institutions maintained the previous month's levels. For lending rates (based on general loans), credit unions (-0.05 percentage points), mutual savings banks (-0.13 percentage points), and mutual finance institutions (-0.15 percentage points) saw declines, while Saemaeul Geumgo increased by 0.14 percentage points.
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