As household debt nears 2,000 trillion won, a record high, borrowers are feeling the strain as market rates rise amid the Middle East war. Lending rates for fixed- and variable-rate mortgage loans, as well as for unsecured credit loans, are climbing in step with market rates.
As of the 17th, according to the Korea Financial Investment Association, the yield on three-year bank bonds (unsecured AAA) is moving between 3.6% and 3.7%. That is the highest level this year and last year combined. The yield on one-year bank bonds, which was around 2.5% at the end of last year, has also steadily risen to around 3%.
With bond yields rising, both mortgage loan and unsecured credit loan rates are on an overall uptrend. As of the 13th, the fixed mixed (fixed) rate for mortgage loans at major commercial banks was tallied at 4.250% to 6.504% annually. That is the highest level in about 2 years and 5 months since late Oct. 2023 (6.705%).
Variable mortgage loan rates were also 3.850% to 5.740% annually, with the ceiling and floor up 0.090 percentage points and 0.106 percentage points, respectively. In addition, as the cost of funds index (COFIX) for new loans in Feb. rose 0.05 percentage points from a month earlier to 2.82%, KB Kookmin Bank and Woori Bank decided to raise rates on some mortgage loan products by 0.05 percentage points as of that day. COFIX is used for variable mortgage loans
The lending rate for unsecured credit loans (top-tier credit, one-year maturity) is running at 3.930% to 5.340% annually. The lower end is up 0.180 percentage points from early this year. A banking sector official said, "With geopolitical tensions increasing volatility in the bond market, financial bond yields are trending higher. Accordingly, it is unavoidable to adjust rates upward on loan products."
As rates rise, the burden on borrowers has also grown. According to the Bank of Korea, the preliminary outstanding household credit balance in the fourth quarter of last year was 1,978.8 trillion won. That is the highest figure since statistics were first released in the fourth quarter of 2002, 24 years ago.
Until the Middle East war, a bullish stock market drove a sharp increase in unsecured credit loans. As of the 12th, the outstanding loan balance at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 766.5501 trillion won, up 687.4 billion won from the end of Feb. Mortgage loans fell by 830.2 billion won, while unsecured credit loans increased by 1.4327 trillion won. The balance of overdraft accounts at the five major banks topped 40 trillion won at the end of last month for the first time in about five years.