Seoul Mortgage Loan Delinquency Rate 0.35% 'All-Time High'
3 to 4 out of 1000 people, mortgage loan repayment 'delayed'
Repayment pressure increases mainly on 'Yeongkkeuljok' as interest rate reset period approaches.
Yeongkkeuljok who borrowed 500 million KRW with a mortgage loan 5 years ago
Monthly interest 1.97 million KRW → 2.37 million KRW. (Must pay 4.8 million KRW more annually in interest)
"Aftershocks of Yeongkkeuljok will continue until August next year"
Average Delinquency Rate at 0.35%... Remains High Despite Interest Rate Cuts
The delinquency rate for mortgage loans in Seoul has remained in the 0.3% range for 20 consecutive months, showing no signs of decline despite falling interest rates. The delinquency rate has risen further this year, reaching an average of 0.35%. This increase is attributed to a growing number of borrowers who took out loans during the ultra-low interest rate period five years ago and are now facing interest rate recalculations, resulting in heavier repayment burdens. Some point out that, even though the base interest rate has been cut twice this year, the overall volume control of household loans has kept mortgage interest rates high, further increasing the burden of interest payments.
According to the Bank of Korea's Economic Statistics System on November 6, the average delinquency rate for mortgage loans in Seoul's domestic banks was 0.35% from January to August this year. This is the highest annual figure since related statistics began to be compiled in December 2019. The annual average delinquency rate remained in the 0.1% range from 2020 to 2022, but rose to 0.26% in 2023 and further increased to 0.31% last year.
Looking at monthly figures, the rate has stayed in the 0.3% range for 20 consecutive months since January 2024 (0.32%). The delinquency rate has worsened further this year, reaching a record high of 0.37% in May. It has remained at the high level of 0.35% for three consecutive months since then. As the rate in Seoul increased, the nationwide mortgage delinquency rate also rose. As of August, the nationwide mortgage delinquency rate was 0.3%, up from 0.29% in the previous month.
The delinquency rate refers to the proportion of mortgage loans for which principal and interest have not been repaid for more than one month. This means that 3 to 4 out of every 1,000 mortgage borrowers in Seoul have fallen behind on their principal and interest payments by at least one month.
'Yeongkkeul' Borrowers Who Took Out Ultra-Low Interest Loans Five Years Ago Now Face High-Interest Boomerang
This rise in the delinquency rate is being attributed to the boomerang effect of ultra-low interest mortgage loans taken out in 2020. Many so-called 'Yeongkkeul' borrowers-those who stretched their finances to the limit based on low monthly interest payments at rates in the 2% range-are now struggling to cope with sharply increased interest as their rates are recalculated this year. So far this year, the average mortgage interest rate stands at 4.03% annually, up 1.53 percentage points from 2.5% in 2020, five years ago. For example, someone who borrowed 500 million won with a 30-year equal principal and interest repayment mortgage at 2.5% in 2020 would have paid about 1.97 million won per month in interest back then; this year, the monthly interest has increased to 2.37 million won (based on a 4.0% annual rate).
Despite the overall downward trend in interest rates, banks have kept mortgage rates high to manage the total volume of household loans, which has also contributed to the situation. Although the base rate has been lowered by 1 percentage point over four adjustments since the policy pivot in October last year through May this year, mortgage rates have only decreased by 0.09 percentage points.
High-Interest Rate Transition to Continue Until August Next Year... Further Rise in Delinquency Rate Possible
The delinquency rate may rise even further going forward. First, mortgage rates are expected to increase further. This is due to rising benchmark bank bond rates, as well as stricter regulations such as increases in risk weights for mortgage loans and tighter controls on the total volume of household lending. In addition, considering that the period when the average mortgage rate was below 3% lasted until August 2021, it is likely that the aftereffects of ultra-low interest mortgage loans will persist until at least August next year. The number of 'Yeongkkeul' borrowers who feel burdened by higher interest payments is expected to increase further as high-interest rates continue. As of December 2020, the proportion of household loans with interest rates below 3% was as high as 81.2%.
