"Monthly Deficit Including Living Expenses Due to Interest Bomb"... Struggling Amid Interest Rate Hikes

Bank of Korea Raises Base Rate for the Fourth Consecutive Time for the First Time
Burden Increases Mainly for Yeongkkeuljok and Multiple Debtors
If Base Rate Rises to 3%, Annual Interest Increases by 1.63 Million KRW
"House Prices Fall but Interest Burden Grows... Feeling Helpless"

Bank of Korea Governor Lee Chang-yong is presiding over the Monetary Policy Committee regular meeting held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 25th. 2022.08.25.

"I regret buying a house with a loan because I couldn't get a subscription. When you add the interest and living expenses, I am running a deficit every month."

On the 25th, the Bank of Korea raised the base interest rate by another 0.25 percentage points, putting the 'Yeongkkeuljok' (people who borrowed loans by pulling together all their resources) under pressure. With rising interest rates and concerns about an economic recession, housing prices are falling while interest costs continue to increase, intensifying the pain for ordinary people. In particular, the Bank of Korea plans to maintain the interest rate hike stance until a clear signal of price stability appears, so the burden on Yeongkkeuljok and multiple debtors is expected to grow further.

According to the financial sector, as the Monetary Policy Committee of the Bank of Korea continues its base rate hike stance, concerns about household interest burdens are growing. As of the second quarter, household loan balances stood at 1,757.9 trillion won, maintaining an upward trend from the previous quarter, and the number of multiple debtors with a high risk of default reached about 4.46 million, raising concerns that the base rate hike could potentially lead to a financial crisis.

A man in his 30s, Mr. A, who purchased a house in Wirye New Town for the mid-900 million won range two years ago, said, "The market price has risen by more than 200 million won since the purchase, but now it has almost fallen back to the purchase price," and added, "I pay more than 2 million won in interest every month, and I am planning to take parental leave next year, so the burden is too great."

According to the Bank of Korea, since August last year until this day, the Monetary Policy Committee has raised interest rates seven times in total by 2.0 percentage points, increasing the average annual interest cost per borrower by about 1,304,000 won over the past year. This is the result of multiplying the ratio of variable interest rates in bank and non-bank sectors (74.2%) in household debt in the second quarter by the interest rate hike and dividing by the total number of borrowers. If the Bank of Korea raises the base rate to 3% by the end of the year as the market expects, the interest burden per person will increase by more than 1,630,000 won.

Along with the base rate hike, COFIX, which serves as the benchmark for various variable interest loan products, also recorded the largest increase ever this month, rising by 0.52 percentage points, turning on the emergency lights for borrowers with mortgage loans.

The problem is that the interest rate hike trend is expected to continue for the time being. A person who took out a 500 million won mortgage loan with a variable interest rate at the end of last year would see their annual interest burden increase by 6.3 million won over half a year, simply calculated by the increase in the newly handled COFIX rate. A Bank of Korea official said, "Since the housing market is sluggish, it is difficult for household debt to increase further, but given the high uncertainty, we need to monitor the trend."

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