A 1-percentage-point rise in interest rates would add 13.1 trillion won ($9.4 billion) a year to the interest burden on South Korean households, according to a tally. Of that total, middle- and low-income households would account for 2.3 trillion won.
If rates climb 0.5 percentage point, households would pay an estimated 6.5 trillion won more in annual interest, according to data the Bank of Korea submitted to Rep. Han Chang-min of the Social Democratic Party, a member of the National Assembly's National Policy Committee, on the 9th. The calculation is based on outstanding household loan balances as of the end of the first quarter of this year.
By income bracket, high-income households would bear the largest additional burden at 4.2 trillion won, a reflection of their larger borrowing limits. Middle-income households would pay an additional 1.6 trillion won and low-income households 700 billion won, bringing the combined figure for the two lower brackets to 2.3 trillion won.
The burden grows proportionally as rates climb further. A 1-percentage-point increase would lift the total additional annual interest payment to 13.1 trillion won, with high-income households paying 8.4 trillion won, middle-income households 3.2 trillion won and low-income households 1.4 trillion won. A 2-percentage-point increase would push the total to 26.1 trillion won.
Self-employed business owners would also see their costs rise. A 0.5-percentage-point increase in lending rates would add an estimated 3.6 trillion won a year to interest payments by the self-employed and 3.7 trillion won to those of mortgage borrowers.
The Bank of Korea's Monetary Policy Board raised its base rate to 2.75% from 2.50% in July, then lifted it again to 3.00% in August, a 0.25-percentage-point increase. Having raised rates for two consecutive months, the board has left open the possibility of further hikes.
Base rate increases do not translate directly into lending rates, but loan rates generally follow with a lag as market rates rise. That has prompted concerns that households already carrying debt will face heavier interest payments, squeezing their capacity to spend.
"Debt restructuring, financial support and other substantive relief measures are needed so that the burden does not fall disproportionately on middle- and low-income households and vulnerable borrowers," Han said.
