The Bank of Korea (BOK) held its benchmark rate steady for a third straight time, but banks' mortgage loan rates continue to rise. With market rates moving the other way and banks urgently needing to manage the total volume of household loans pushing up their spreads, the average mortgage rate is again approaching the 4% range per year.
According to the financial sector on the 24th, as of the previous day KB Kookmin Bank's fixed-rate mortgage loan rate was 3.73% to 5.13% per year. Compared with early last month, when the lower end was 3.6% per year, it rose 0.13 percentage points. Shinhan, Hana, and Woori Bank also saw the lower end of their mortgage loan rates climb 0.099 to 0.14 percentage points in the same period.
Rising market rates, driven by uncertainty in tariff negotiations and expectations of delayed rate cuts, had an impact. The yield on five-year AAA bank bonds, the benchmark for fixed-rate mortgage loans, rose 0.085 percentage points from 2.851% on the 1st of last month to 2.936% on the 23rd. A bank official said, "Expectations that the Bank of Korea (BOK)'s policy rate cut will be later than initially anticipated are exerting upward pressure on market rates."
Banks also are keeping their spreads at elevated levels, which is another reason mortgage loan rates are rising. According to the Korea Federation of Banks, the average spread on newly issued mortgage loans (partitioning repayment method) at the four major banks — Kookmin, Shinhan, Hana, and Woori — jumped from 2.09% to 3.22% in January to 2.36% to 3.23% last month.
Banks are raising spreads to make it harder to borrow. According to data obtained by Democratic Party of Korea lawmaker Lee In-young, a member of the National Policy Committee, from the Financial Supervisory Service, Shinhan and NH Nonghyup Bank exceeded their annual household loans targets, and Hana (95%) and Kookmin (85%) also nearly reached their targets. With little room to lend, they are keeping rates high to curb demand.
A "loan cliff" appears inevitable for the time being. Banks are restricting new mortgage loan issuance. Woori Bank capped branch-level sales limits for real estate finance products ("mortgage loan," jeonse deposit loans) at 1 billion won per month for Nov.–Dec., while Shinhan Bank halted acceptance of new loan applications via loan consultants through the end of this year's disbursements.