The upper end of commercial banks' mortgage loan rates topped 7% a year again for the first time in two months. Analysts said the prolonged U.S.-Iran war is pushing market rates and prices up together. With inflation rising, both the Federal Reserve (Fed) and the Bank of Korea are hinting at the possibility of raising benchmark rates, leaving room for mortgage loan rates to climb further.
According to the financial sector on the 16th, the five-year hybrid mortgage loan rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 4.45% to 7.05% a year as of the 15th. It is the first time since March that the upper end of mortgage loan rates has exceeded 7%. Variable rates were slightly lower at 3.65% to 6.05%.
Rates are likely to rise further. The five-year unsecured AAA financial bond yield, which serves as the benchmark for banks' fixed-rate mortgage loans, reached 4.279% on the 15th. That is the highest level in about two and a half years since early Dec. 2023. The five-year unsecured AAA financial bond yield had steadily remained in the 2% to 3% range, but began climbing in late February this year after the U.S.-Iran war broke out.
A financial industry official said, "With Middle East risk, led by the U.S.-Iran war, lasting longer than expected, uncertainty is also becoming prolonged. In the United States, talk has shifted from rate cuts to rate hikes due to the shock in price indexes, and Korea is in a similar situation."
The U.S. producer price index (PPI) for April, released recently, rose 1.4% from the previous month. That far exceeded the market expectation of 0.5% and marked the biggest increase since March 2022 (1.7%).
The Bank of Korea is also under pressure to raise rates. The Korea Development Institute (KDI) recently raised its forecast for Korea's economic growth this year by 0.6 percentage points to 2.5%. It also projected inflation at around 2.7%. A banking sector official said, "There is no justification for cutting rates when the economy is strong and prices are rising. If the current trend continues, additional increases in mortgage loan rates may be unavoidable."