Korea’s household loans up for first time in 9 months on record mortgages

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South Korea’s household debt gained for the first time in 9 months in June as mortgage loans reached its highest level amid a rebound in housing prices.

According to the Bank of Korea on Tuesday, household credit balance rose by 9.5 trillion won ($7 billion) at the end of the second quarter from the end of the first quarter, reaching 1,862.8 trillion won. Household credit refers to comprehensive household debt, encompassing household loans as well as sales credit, such as outstanding card charges.

It is the first increase in 9 months since the end of the third quarter of last year. By the end of the fourth quarter last year, household credit decreased by 3.6 trillion won. The decline continued, with a 14.3 trillion won fall at the end of the first quarter this year, primarily attributed to slowed demand in the real estate market amid a downturn, along with loan interest rate hikes triggered by the rapid increases in benchmark rates.

This year, however, the introduction of low-interest government loan products, such as special mortgages, along with the growing belief that housing prices have reached their lowest point, has triggered a resurgence of household loans.

The nationwide housing transaction volume, which stood at 91,000 units in the fourth quarter last year, rebounded to 155,000 units in the second quarter.

“The shift in household credit is attributed to a rise in demand for household loans as housing transactions recover, driven by the anticipated rebound in the real estate market. Another contributing factor is the seasonal slowdown in sales credit,” the central bank said.

Home mortgage loan balance reached a record high of 1,031.2 trillion won. The increase was 14.1 trillion won, about three times the amount of 4.5 trillion won at the end of the previous quarter, and the largest since the end of the third quarter of 2021 when the figure stood at 20.9 trillion won. Total household loans, including home mortgage loans, increased by 10.1 trillion won to 1,748.9 trillion won.

Analysts project that household debt will continue its uptrend in the third quarter, fueled by the ongoing recovery momentum in the real estate market and real estate stimulation policies that incentivize housing purchases.

“Considering eased lending regulations, a perception of high inflation, and benchmark interest rates not significantly higher than those in the U.S., there is room for household loans to increase,” said Professor Sung Tae-yoon at Yonsei University, highlighting a need for policies that support low-income borrowers and control loans with a high risk of default.

Authorities are considering policies to mitigate household debt risks. While attending a session of the National Assembly’s planning and finance committee on Tuesday, Bank of Korea Governor Rhee Chang-yong mentioned the potential for implementing both micro- and macro-level measures to curb any further increase in household debt.

“The policy priority is to reduce household debt to 90 percent of the gross domestic product in the mid- to long-term, down from the current 105 percent,” said Rhee.