For the first time in about a year and a half, interest rates on mortgages and buy-to-let loans at major commercial banks fell below 3 per cent for both types of loans안전놀이터.

With these lower rates and a pickup in property transactions, household loans at the five largest banks reversed course last month and grew for the first time in a year and a half.

The flow of deleveraging (debt repayment and reduction) due to monetary tightening, such as raising the benchmark interest rate for about two years, has virtually stopped, but there are concerns within the BOK that a premature “weakening of deleveraging” could lead to financial and economic instability.

KOPIX drops, main mortgage variable rate also 3%…fixed rate rises slightly
According to the financial sector on Thursday, KB, Shinhan, Hana and Woori Bank’s two-day floating rates for mortgages (linked to the new KOPIX) ranged from 3.910 to 6.987 per cent per annum.

Compared to about 20 days ago (12 May – 4.090-6.821% p.a.), the bottom rate, which applies to a significant number of borrowers, has fallen by 0.180 percentage points (p).

This is because COFIX, an indicative interest rate, has decreased by 0.120 percentage points (from 3.560% to 3.440%) over the same period, and banks have reduced their surcharges and increased their preferential rates as part of the “win-win financing” initiative.

The lower end of the mortgage loan (guaranteed by the Housing Finance Corporation – 2-year maturity) rate (3.800-6.669%) and the mixed mortgage loan (fixed) rate (based on 5-year bank bonds – 3.920-6.044% per annum) also remain in the 3% range.

As market (bond) rates have been falling since several months ago in anticipation of the end of domestic and international tightening, mortgage fixed rates first came down to the 3% range, and as the decline in market and deposit rates has been reflected in the COFIX, an indicator of mortgage variable rates, including those for loan-to-owners, the variable and loan-to-owner rates have also recently entered the 3% range.

According to Bank A’s internal rate trend, as of the 2nd, the lower end of the mortgage variable-fixed (mixed) rate and the lower end of the charter loan rate are both in the 3% range, which is the first time in about one year and three months since February 2022.

However, in the case of the mixed (fixed) mortgage rate, the lowest level is 0.240 percentage points higher than 20 days ago due to the recent increase in market interest rates.

5 major banks’ May household loans 1431 billion won…main mortgages 693.5 billion won
As lending rates have stabilised in the 3 percent range, household loans, which have been lagging behind due to high interest rates, have been stirring again.

The balance of household loans at the five major banks (KB, Shinhan, Hana, Woori, and NH Nonghyup) at the end of May was 677.6 trillion won, up 14.1 billion won from April (677.4 trillion won).

It is the first time in one year and five months since December 2021 (+364.9 billion won) that household loans of the five largest banks increased from the previous month.

Specifically, residential mortgages, including those for rent, (balance 509.76 trillion won) increased by 693.5 billion won. This was the first rebound in four months, after declining from February to April 2023, and is believed to be related to the recovery of the property market.

Earlier, according to the BOK, household loans of all depository banks (balance of KRW152.3 trillion) at the end of April were KRW2.3 trillion higher than a month earlier, already confirming a reversal after four months.

Based on the latest trend of the five largest banks, it is estimated that the total banking system’s household loans increased for the second consecutive month in May following April.

Household loans from the entire financial sector, including banks and secondary financial institutions, also increased by 200 billion won in April, the first increase in eight months since August 2022, and it is likely that the trend continued in May.

“The number of loan consultations at branches has recently increased to two to three times the number at the end of last year,” said an official at a commercial bank, explaining that this was due to a combination of a recovery in sluggish housing transactions, an increase in the number of renters moving out, and interest rate cuts.

“House prices still overvalued…steady deleveraging needed,” says Hahn
For the BOK, which has been tightening policy by raising interest rates for nearly two years since August 2020, the resurgence in property and household lending is a mixed bag.

“In terms of financial imbalances, while house prices and household debt have been adjusting since 2022 due to the spillover effects of the benchmark interest rate hike, it is difficult to assess that the imbalances in house prices and household debt that accumulated over a long period of time until 2020 have been resolved,” Hong Kyung-shik, the BOK’s monetary policy director, wrote in a post on the BOK’s official blog on 30 March.

“Given that house price levels remain disconnected from incomes and overvalued, and the ratio of household debt to gross domestic product (GDP) is among the highest in major economies, we believe that deleveraging will need to continue steadily in the future to ensure long-term macroeconomic stability.”

Regarding the recent developments in real estate and household debt, “the potential for a soft landing in the real estate market has increased, with house price declines narrowing, which is clearly positive in terms of short-term financial market stability,” but “if the deleveraging process weakens as a result, this should be taken into account in future policy operations, as the already high level of household debt poses financial stability risks and hinders stable macroeconomic growth.”

According to the IIF’s Global Debt report, which examines the ratio of household debt to gross domestic product (GDP) in 34 countries around the world (the euro area is a single statistic) as of the first quarter of this year, South Korea was the highest at 102.2 per cent.

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