South Korean banks are set to raise mortgage rates again within a month as the government seeks to rein in household debt growth that is accelerating at its fastest pace in three years amid growing expectations of interest rate cuts.
The central bank will raise mortgage rates by 0.05 to 0.20 percentage points starting Thursday. Between late June and early this month, the central bank raised mortgage rates by similar amounts.
Kookmin Bank is set to raise interest rates on home loans and home rental deposit loans by 0.20 percentage points on Thursday, according to banking industry sources.
This is the third time in just this month that the country's largest banks have raised mortgage rates, having increased them by 0.13 percentage points on July 3, followed by a 0.10-0.20 percentage point hike in residential rental deposit rates on July 11.
Woori Bank plans to raise interest rates for two- to five-year home loans and home rental deposits by 0.15-0.20 percentage points on July 24, following a 0.10 percentage point increase earlier this month.
Shinhan Bank plans to raise mortgage interest rates by 0.05 percentage points on July 22nd.
Seoul Apartment
The series of mortgage rate hikes comes amid growing government warnings about the rapid rise in household debt that has fuelled house price increases.
But the rise in lending rates contradicts comments made by Bank of Korea Governor Lee Chang-yong last week that a rate cut was possible, though he was cautious about the timing, citing rising household debt and rising home prices.
The Bank of Korea last week kept interest rates unchanged at 3.50% for the 18th consecutive month.
With consumer price inflation hovering around the government's 2% target, market participants expect a rate cut as early as October.
Housing loans, including home rental deposit loans, increased by 26.5 trillion won ($19 billion) in the first half of the year to 1,115.5 trillion won ($807 billion).
This was the fastest six-month growth rate since the 30.4 trillion won increase in the first half of 2021, when housing prices were on an upward trend.
Kim Byung-hwan, candidate for chairman of the Financial Services Commission
In a bid to curb the growth of home loans, financial authorities are inspecting the country's five largest banks, including Hana Bank, Nonghyup Bank and internet-only lender Kakao Bank, to see whether they are complying with debt-service ratios, which assess borrowers' ability to repay debt.
Kim Byung-hwan, nominee for chairman of the Financial Services Commission, said in a written response to questions posed at a National Assembly hearing on Tuesday that the Financial Services Commission would preemptively curb the growth of loans to households.
Expanding lending margins
However, despite rising lending rates, domestic banks have not increased interest rates on savings accounts.
Industry participants said the government measures aimed at curbing growth in household lending will widen the gap between deposit and lending rates, boosting banks' interest income.
Send an email to Bo-Hyung Kim at kph21c@hankyung.com
This article was edited by Younghee Kim