As the Bank of Korea (BOK) formalizes plans for future rate hikes, borrowers are on edge. In the banking sector, there are projections that the upper end of mortgage loan rates could surge into the 8% range if the benchmark rate rises. The upper end of mortgage loan rates topped 7% in mid-last month and has inched up since.
According to the Korea Financial Investment Association bond information center on the 1st, the five-year unsecured AAA financial bond yield, which serves as the benchmark for bank fixed-rate mortgage loans, was 4.207% as of the 29th of last month. That was slightly down from the previous day (4.28%) but still high compared with early this year (3.4%–3.5%).
The Bank of Korea (BOK), which has held rates steady for eight consecutive meetings, said a hike is unavoidable. Governor Shin Hyun-song said on the 31st of last month, "Whether you look at prices, growth, the exchange rate or real estate, the path is clear. It is judged necessary to raise the base rate at an appropriate time going forward."
As of the 29th of last month, the five-year fixed mortgage loan rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) ranged from 4.26% to 7.10% annually. Compared with about half a month earlier, the lower end rose 0.01 percentage point (P) and the upper end rose 0.05 percentage point (P). A banking sector official said, "If the Bank of Korea (BOK) raises the base rate, bank lending rates cannot help but rise."
A little over three and a half years ago, in early Jan. 2023, mortgage loan rates at commercial banks topped 8%. At that time, the lending rate based on the new COFIX for Woori Bank's flagship mortgage loan product, Woori Apartment Loan, was 7.32%–8.12% annually. During this period, the five-year unsecured AAA financial bond yield was in the 4.2%–4.3% range, similar to now. At Kbank, fixed-rate mortgage loan rates are currently also 4.54%–8.42%.
Borrowers who took on "bit-too" ("investing with debt") to join the KOSPI rally are also likely to face heavier burdens. The outstanding balance of personal credit loans at the five major banks stood at 106.9909 trillion won as of the end of May, up 2.6496 trillion won (2.54%) from the end of April (104.3413 trillion won). That is the biggest increase in 5 years and 1 month since April 2021 (6.8401 trillion won), when the virtual asset investment boom raged.
Overdraft account balances also reached 41.9303 trillion won as of the end of May, up 2.1426 trillion won (5.39%) from the end of April. This, too, is the biggest jump since April 2021.