Home-loan interest rates reach highest since January

After a brief dip midyear, mortgage rates in Korea are rising again, as the latest data from the central bank show.

Interest rates on new loans rose seven basis points to 3.36 percent, according to a Bank of Korea report on trends of weighted average interest rates for November. The BOK data also showed that mortgage rates increased from 2.89 percent in October to 3.04 percent in November, up 0.15 percentage point in a span of a month.

This is the first time mortgage rates have climbed above 3 percent in six months. Rates have been in a downturn all year, falling to 2.66 percent in July before ascending again. November rates were the highest since January when they were 3.1 percent.

“Along with mortgage rates, average interest rates on new deposits also went up [from 1.41 to 1.51 percent],” said Baek Seung-hui, a researcher in the central bank’s economic statistics department.

“The key rate hike by the Federal Reserve earlier this month as well as speculations that it will raise interest rates in three separate quarter-point moves next year has contributed to this current trend.

“In addition, the outstanding amount of household debt is at a record high and we are trying to control the volume by raising the interest rate. These factors all worked together and led to the mortgage rate hike.”

According to the data from the BOK, household debt reached 1,295 trillion won ($1.07 trillion) by the third quarter of 2016. Out of the total amount, nearly 1,000 trillion won comes from mortgage loans. Snowballing debt forced the Korean government to implement strong measures to curb a further rise and the mortgage rate increase is seen as being in line with the trend.

Still, some analysts doubt that the current pace of mortgage rate increase will stop household debt from growing further.

“2012 was the trough for the Korean real estate market,” explained Baek Kwang-je, an analyst from Kyobo Securities.

“Since then, household debt has surged tremendously. However, while the total amount has gone up, the interest rate has gone down during the same period, which means the actual amount that homebuyers had to bear has gone down as well.

“This shows that just a few basis point rise wouldn’t put much burden on the borrowers, meaning it won’t likely to affect the real estate market negatively, unless the mortgage rate goes up by 100 to 200 basis points, a highly unlikely scenario.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]