An interest rate inversion has occurred in which banks' mortgage loan rates are the same as or higher than rates for corporate loans. This is because major banks are artificially raising mortgage loan rates in line with the government's policy to tighten household loans. Bank mortgage loan rates have reached levels similar to those of mutual finance institutions, which are classified as secondary financial institutions.
According to the Bank of Korea on Dec. 3, the mortgage loan (including fixed and variable) rate based on new handling amounts at deposit banks was 3.96% in September, higher than the rate for general corporate operating funds loans on the same basis (3.95%). The mortgage loan rate stood at 3.74% in September last year, nearly 1 percentage point lower than general corporate operating funds loans (4.67%), but it overtook them in one year.
Among corporate loans, the lending rate for small and midsize corporations, which sees the highest demand, has become the same as the mortgage loan rate. In September, the lending rate for small and midsize corporations was 4.05%, leaving only a 0.09 percentage point gap with mortgage loans. A year earlier, the gap was 1 percentage point. Over the same period, the difference between corporate loan lending rates and mortgage loan rates also narrowed from 1.03 percentage points to 0.03 percentage points.
Mortgage loans are considered loans backed by apartment collateral, making it not difficult to recover principal even if arrears occur. The financial sector views it as unusual that the rate is similar to or higher than that of small and midsize corporate loans, which have a higher probability of becoming nonperforming. Mortgage loan rates are calculated by adding a spread to market rates such as COFIX and subtracting preferential rates. While market rates continue to fall, an inverse trend has emerged in which overall rates rise or stay elevated as banks increase mortgage loan spreads or reduce preferential rates. In the name of managing household loans, mortgage loan rates have been raised excessively.
In fact, the COFIX rate (new handling amounts) linked to mortgage loans fell to 2.52% in September from 3.4% in September last year, but mortgage loan rates rose over the same period from 3.74% to 3.96%. The gap between mortgage loans and COFIX widened from 0.34 percentage points to 1.44 percentage points. This contrasts with the decline in most lending rates during this period, including corporate loans, loans secured by deposits and installment savings, jeonse loans, and unsecured credit loans.
As only mortgage loan rates have risen, bank mortgage loans have come to resemble those of mutual finance institutions. The mortgage loan rate at mutual finance institutions was 4.07% in September, 0.11 percentage points higher than banks. This raises concerns that demand for bank mortgage loans could shift to secondary financial institutions.
In the financial sector, there is an outlook that this phenomenon will continue through the year-end, when demand for dwellings funds tends to concentrate. With real estate loan regulations tightened and banks needing to meet their annual household loans volume targets, they have no choice but to raise lending thresholds. The financial authorities decided to impose a penalty by reducing next year's loan limit for banks that exceed their loan targets.
By contrast, time deposit rates have fallen to the point of matching the Bank of Korea's base rate. Time deposit rates dropped from 3.41% in September last year to 2.52% in September. If time deposit rates decline while lending rates such as mortgage loans do not fall in tandem, the deposit-lending spread will inevitably widen. At some banks, the deposit-lending spread hit the highest level since the Korea Federation of Banks began related disclosures in July 2022. The deposit-lending spread is the source of banks' revenue; the larger the spread, the more profit banks make.