Mortgage Loan Rate Hike Halts... Remains in 3% Range for Five Consecutive Months

Bank of Korea's August Weighted Average Interest Rates
Mortgage Loan Rate Holds Steady at 3.96%
Loan-to-Deposit Spread Rises by 0.02 Percentage Points
"Base Effect from Low-Interest Public Enterprise Loans"

The upward trend in mortgage loan interest rates offered by banks has come to a halt. However, despite a decline in the benchmark five-year bank bond yield, some banks maintained steady rates as additional interest rates raised in June and July were reflected with a time lag.

Yonhap News Agency

According to the weighted average interest rates of financial institutions for August, announced by the Bank of Korea on September 30, the interest rate on mortgage loans (based on new loans) at deposit banks last month stood at 3.96%, unchanged from the previous month.

The mortgage loan rate, which had climbed to 4.27% in January this year, declined for four consecutive months from February, but began to rise again in June before stabilizing this time. Since dropping to 3.98% in April, the rate has remained in the 3% range for five consecutive months.

Breaking it down further, the fixed-rate mortgage loan interest rate (3.94%) fell by 0.01 percentage points, while the variable-rate mortgage loan interest rate (4.08%) rose by 0.03 percentage points. Kim Minsoo, Head of the Financial Statistics Team at the Economic Statistics Department 1, explained, "The increase in variable rates was due to banks reducing preferential rates or raising additional interest rates in June and July. The fixed rate declined compared to the previous month, as the benchmark five-year financial bond rate fell, despite increases in additional interest rates."

The interest rate on jeonse deposit loans rose by 0.03 percentage points from the previous month to 3.78% per annum, as some banks reduced preferential rates.

The interest rate on general credit loans rose by 0.07 percentage points over the same period to 5.41% per annum. Although this marked a second consecutive monthly increase, the pace of the rise slowed compared to the previous month's sharp increase of 0.31 percentage points. Kim explained, "The actual interest rate burden for borrowers did not necessarily increase. Rather, the proportion of new loans to high-credit borrowers, who could obtain loans at relatively low rates, decreased as the June 27 policy limited credit loan amounts to within annual income."

Including these categories, the overall household loan interest rate fell by 0.03 percentage points from the previous month to 4.17% per annum, marking a ninth consecutive monthly decline since December last year. While mortgage loan rates remained steady and both jeonse deposit and general credit loan rates increased, the overall decline was driven by a 0.09 percentage point drop in the interest rate on other guaranteed loans to 4.03% per annum.

The corporate loan interest rate fell by 0.01 percentage points to 4.03% per annum, marking a third consecutive monthly decline since June this year. As short-term market rates, such as short-term bank bonds, fell, interest rates for both large corporations and small and medium-sized enterprises declined. The rate for large corporations dropped by 0.1 percentage points to 3.99% per annum, and for small and medium-sized enterprises, it also fell by 0.1 percentage points to 4.08% per annum.

The interest rate on time and savings deposits (based on new deposits) was recorded at 2.49%, down 0.02 percentage points from the previous month, marking an eleventh consecutive monthly decline since October last year. Specifically, the pure savings deposit rate, centered on time deposits, fell by 0.02 percentage points to 2.48% per annum, while the market-type financial product rate, focused on financial bonds, also dropped by 0.02 percentage points to 2.52%.

The loan-to-deposit interest rate spread (based on new loans) rose by 0.02 percentage points from the previous month to 1.57 percentage points. On a balance basis, the spread remained steady at 2.18 percentage points. Kim explained that the increase in the loan-to-deposit spread for new loans was a base effect, stating, "Although corporate and household loan rates declined, public institution loan rates, which had dropped due to low-interest loans from some public enterprises in July, rebounded by 0.16 percentage points last month. Excluding this, there were no significant changes."

Regarding the impact of the June 27 policy on interest rates, Kim said, "The direct impact was on credit loan rates. Since the policy, the scale of additional interest rate increases and reductions in preferential rates has been smaller than in the second half of last year, so the impact on mortgage and jeonse deposit loan rates has not been significant."

Meanwhile, the proportion of fixed-rate household loans rose by 2.5 percentage points from the previous month to 62.3%. The proportion of fixed-rate mortgage loans also fell by 0.5 percentage points to 88.3%.

The deposit interest rate for one-year term deposits at non-bank financial institutions, including savings banks, credit unions, mutual finance companies, and community credit cooperatives, declined across the board. Lending rates (based on general loans) also fell at all these institutions.