Slight Increase in Mortgage Loan Rates... Will It Curb the Surge in Household Loans?

March Housing Loan Debt Increased by 5.7 Trillion Won
Second Largest Increase After 6.3 Trillion Won in March Last Year

[Asia Economy Reporter Park Sun-mi] Due to fluctuations in the Cost of Funds Index (COFIX), the mortgage loan interest rates based on new loan amounts at some commercial banks have slightly increased. Attention is focused on whether the rise in mortgage loan interest rates can curb the surge in household loans.

According to the banking sector on the 17th, Woori Bank raised the mortgage loan interest rates based on the new COFIX from the previous 2.62?3.62% to 2.63?3.63%, an increase of 0.1 percentage points, starting yesterday. The outstanding balance COFIX stands at 2.63?3.63%. KB Kookmin Bank also adjusted the mortgage loan interest rates based on the new COFIX to 2.40?3.90%, and the outstanding balance COFIX to 2.2?4.02%. NH Nonghyup Bank raised the new COFIX-based interest rates by 0.1 percentage points to 2.42?3.63%.

The interest rate increase is due to the rise in COFIX, which serves as the benchmark for variable mortgage loan interest rates in the banking sector. The COFIX based on new loan amounts disclosed by the Korea Federation of Banks for March was 0.84%, up 0.01 percentage points from February’s 0.83%. After two consecutive months of decline in January (0.86%) and February (0.83%) following December last year (0.90%), the COFIX based on new loan amounts slightly rebounded in March. Since the COFIX based on new loan amounts is calculated from funds newly raised by banks during the month, it tends to reflect market interest rate changes relatively quickly.

According to the Bank of Korea’s “March Financial Market Trends,” the household loan balance in the banking sector at the end of March was KRW 1,009.5 trillion, an increase of KRW 6.5 trillion compared to the previous month. In terms of March increases, this is the second-largest rise since statistics began in 2004, following last year’s KRW 9.6 trillion. The increase in household loans was largely due to a significant rise in mortgage loans. Last month, mortgage loans increased by KRW 5.7 trillion, which is also the second-largest March increase after last year’s KRW 6.3 trillion.

However, it remains uncertain whether the slight rise in variable mortgage loan interest rates at some commercial banks will slow the growth of household loans. This is because mortgage loan interest rates are still perceived as low due to the low interest rate environment, and with the expansion of non-face-to-face services, banks are making mortgage loan applications more convenient, which could lead to interest rate competition among banks for mortgage loans.

From the consumers’ perspective, applying for mortgage loans is becoming increasingly convenient. Hana Bank launched the non-face-to-face mortgage loan product “Hana OneQ Apartment Loan” this month, which allows loan eligibility verification within three minutes even without prior banking transactions, receiving a positive response. Shinhan Bank also expanded the collateral scope, previously limited to apartments, to include multi-family houses, row houses, and villas through improvements in its non-face-to-face mortgage loan services, allowing document submission via the Shinhan Bank app. Although customers still need to visit a branch to sign the administrative information consent form, the bank is currently preparing to offer a 100% non-face-to-face mortgage loan service.

Woori Bank also plans to launch a non-face-to-face mortgage loan product within the first half of the year. Among internet-only banks, K Bank operates a 100% non-face-to-face mortgage loan product, and the industry expects KakaoBank to soon launch a non-face-to-face mortgage loan product that uses all types of housing as collateral, not just apartments.

The household debt management plan to be announced soon by financial authorities is another variable. The authorities have stated their intention to reduce the household debt growth rate from the 8% range last year to the 4% range next year, but since they are also exploring financial support measures to strengthen the housing ladder for non-homeowners and young people, it remains uncertain how effectively the surge in household loans can be curbed.

This content was produced with the assistance of AI translation services.