Mortgage Loan Rates Exceed 4% for First Time in 8 Months, "Further Increases Likely"

Bank of Korea Releases "Weighted Average Interest Rates of Financial Institutions in November"
Mortgage Loan Rate at 4.17% Per Annum... Up 0.19 Percentage Points from Previous Month

The interest rates on mortgage loans handled by banks have been rising for two consecutive months, surpassing 4% for the first time in eight months. This is largely due to a significant increase in market interest rates, such as bank bonds, which serve as benchmark rates. However, the extent of the increase was limited, as some banks' reductions in additional interest rates during September and October were reflected with a time lag. Not only mortgage loans but also rates for jeonse (long-term lease) loans and general unsecured loans have risen, leading to a continued upward trend in overall household loan interest rates for two consecutive months.

According to the "Weighted Average Interest Rates of Financial Institutions in November" released by the Bank of Korea on the 29th, the interest rate on newly issued mortgage loans at deposit banks last month was 4.17% per annum, up 0.19 percentage points from the previous month. After reaching 4.27% in January, the mortgage loan rate declined from February to May, rose in June and July, remained flat in August and September, and then increased again in October and November. The rate has returned to the 4% range for the first time in eight months since March (4.17%). Specifically, the fixed-rate mortgage loan stood at 4.17%, and the variable-rate mortgage loan at 4.18%, rising by 0.20 percentage points and 0.07 percentage points, respectively, from the previous month.

The interest rate on jeonse loans was 3.90% per annum, up 0.12 percentage points from the previous month. As the benchmark rate for bank bonds increased, the rate has risen for two consecutive months since October (3.78%). The interest rate on general unsecured loans was 5.46% per annum, up 0.27 percentage points over the same period. This marks the first increase in three months since September (5.31%). The rise is attributed to the increase in short-term bank bond rates, which serve as benchmark rates, as well as the expansion of lending to mid- and low-credit borrowers by some banks.

Including these, the overall household loan interest rate was 4.32% per annum, up 0.08 percentage points from the previous month. This marks the second consecutive month of increase since October (4.24%). Kim Minsoo, head of the Financial Statistics Team 1 at the Bank of Korea, explained, "Although the 5-year bank bond rate, which is the benchmark rate, rose by 0.33 percentage points in November, the increase in household loan rates was limited due to the delayed impact of some banks' reduction in additional interest rates during September and October."

The interest rate on corporate loans was 4.10% per annum, up 0.14 percentage points from the previous month. The rise in short-term market rates led to increases in both large corporate and small and medium-sized enterprise (SME) loan rates. As the rates on negotiable certificates of deposit (CDs) for 91 days and short-term bank bonds rose, the rate for large corporations (4.06%) and SMEs (4.14%) both increased. This marks the first rise in corporate loan rates in six months since June (4.06%).

There is also analysis suggesting that loan interest rates are likely to rise in December. Kim stated, "Monitoring in December shows that both short- and long-term rates have been rising as of last week," adding, "We expect the possibility of further increases in loan interest rates in December."

The interest rate on savings deposits (based on newly issued deposits) was 2.81%, up 0.24 percentage points from the previous month, as rates on time deposits increased. This marks the third consecutive month of increases since September (2.52%). By category, the pure savings deposit rate, mainly for time deposits, rose by 0.22 percentage points to 2.78% per annum. The market-type financial product rate, mainly for CDs and financial bonds, rose by 0.29 percentage points to 2.90%.

The loan-deposit interest rate spread (based on newly issued amounts) narrowed by 0.11 percentage points to 1.34%, as the increase in lending rates was limited compared to deposit rates. Based on outstanding balances, the spread increased by 0.01 percentage points to 2.19%.

Meanwhile, the proportion of fixed-rate household loans fell by 1.6 percentage points to 54.6% from the previous month, marking a decline for four consecutive months since August (62.2%). Among mortgage loans, the proportion of fixed-rate products dropped by 3.8 percentage points to 90.2%, reversing an upward trend for the first time in three months since September (91.5%).

Among non-bank financial institutions, the interest rate on one-year time deposits declined at savings banks (-0.04 percentage points) and credit unions (-0.01 percentage points). The loan interest rate (for general loans) increased at credit unions (0.13 percentage points) and mutual finance institutions (0.08 percentage points), while it decreased at savings banks (-0.81 percentage points) and community credit cooperatives (-0.01 percentage points).