The share of mortgages carrying interest rates above 5% has risen roughly 20-fold in South Korea this year, as a global selloff in government bonds coincided with heavy year-end issuance of bank debentures.
Mortgages with rates of 5.0% or higher accounted for 55.4% of new installment-repayment home loans extended by Shinhan Bank in August, up 22-fold from 2.5% in December, according to financial industry sources on the 2nd.
Over the same period, Hana Bank's share climbed to 24.9% from 0.9%, a 28-fold increase, while NH NongHyup Bank's rose nearly 14-fold to 76.5% from 5.5%. KB Kookmin Bank's share expanded ninefold to 5.3% from 0.6%, and Woori Bank's doubled to 8.8% from 4.2%. Across the five largest banks, new mortgages priced at 5% or above grew to 2.34 trillion won from 166.5 billion won in December.
A borrower taking out a 600 million won mortgage over 30 years at 5.0% must repay 3.22 million won a month in principal and interest, or 180,000 won more than at 4.5%. Under the debt service ratio (DSR) rules, higher rates also shrink the amount a borrower can take out.
The rise in high-rate lending follows two consecutive base rate increases by the Bank of Korea in July and August, at a time when global rates were climbing quickly on concerns over fiscal expansion in major economies. Banks also raised their lending spreads to manage overall loan growth as demand surged amid a sharp run-up in home prices in the greater Seoul area in the first half. Seo Ji-yong, a professor of business administration at Sangmyung University, said bank debenture yields used to price fixed-rate mortgages continue to rise, leaving room for further increases. "The lower a borrower's credit rating, the heavier the interest burden can become, so measures need to be prepared," the professor said.
