At the end of last month, starting with the war between the United States and Iran, the upper end of bank mortgage loan rates shot up to 7% a year but has now fallen to the high 6% range. However, banks say there is a strong possibility rates will rise again over the long term. On top of continued instability in the Middle East, the surge in oil prices due to the war could feed into higher inflation and rates.
According to the banking sector on the 20th, as of the 17th, mortgage loan rates based on five-year bank bonds at the five major domestic banks—KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup—were tallied at 4.15% to 6.75% a year. After climbing to 4.40% to 7.00% a year at the end of March to hit a peak, they edged down slightly. It was the first time in 41 months since Oct. 2022 that the upper end of mortgage loan rates reached the 7% range.
Mortgage loan rates have been moving in step with the Middle East situation. In early March, right after the outbreak of the U.S.-Iran war, the upper end was in the high 6% range a year, but by the end of March, one month into the war, it rose to 7% a year. After the United States and Iran agreed to a two-week cease-fire on the 9th of this month, rates have been on a gradual downward trend.
Still, the Middle East remains unstable. The Islamic Revolutionary Guard Corps in Iran announced it would reclose the Strait of Hormuz, which had been temporarily opened the previous day. In response, U.S. forces attacked and seized an Iranian cargo ship, triggering military clashes. U.S. President Donald Trump also said, "If Iran does not agree to a cease-fire, I will destroy all power plants and bridges in Iran."
Market rates are also being affected. According to the Korea Financial Investment Association's Bond Information Center, the five-year (AAA) bank bond yield that serves as the benchmark for mortgage loan rates surpassed 4.100% at the end of March, then fell to the 3.700% range in early April on news of the two-week cease-fire. However, it climbed again to 3.865% on the 17th.
Financial industry officials also voice concern about a prolonged period of high oil prices caused by the war. Inflation stemming from high oil prices serves as a factor for the Central Bank to raise its policy rate. Typically, when prices rise, the Central Bank raises rates to draw money circulating in the market back into banks.
An official in the financial sector said, "Amid the war, Middle Eastern countries have sharply cut crude production, causing a surge in oil prices, and even after the war ends, it takes more than three months for crude output to recover to previous levels. In the meantime, inflation and rate hikes could occur simultaneously."
Another banking sector official said, "Depending on the Middle East situation, rates may swing in the short term, but from a long-term perspective, (rates) are expected to trend gradually upward."