Korean lenders’ mortgage loan balance rises by $3.7 bn in July

[Photo by Yonhap]

Commercial banks in South Korea have seen their outstanding balance in mortgage loans increase by over 5 trillion won ($3.61 billion) in July, data showed on Sunday.

According to sources from the banking sector, the outstanding household loan balance at the country’s five major banks stood at 713.31 trillion won as of July 25, up 4.73 trillion won from 708.57 trillion won at the end of June.

The five banks are KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup.

The lenders’ household loans rose by 5.34 trillion won in June, marking the steepest gain in 2 nearly 3 years since July 2021.

The outstanding balance of mortgage loans, in particular, which was 552.15 trillion won at the end of June, surged by 5.26 trillion won as of July 25.

The main driver behind the increase in household loans is attributed to the expectations of a recovery in the real estate market.

According to the Korea Real Estate Board, the price of apartments in Seoul rose by 0.3 percent in the fourth week of this month compared to the previous week, continuing an 18-week upward trend. This is the largest increase in more than 5 years since the second week of September 2018.

The Bank of Korea also announced that the housing price outlook index for July rose by 7 points from the previous month to 115, the highest level in 2 years and 8 months.

“The buying sentiment for real estate is perceived to be similar to that for the period of skyrocketing house prices three years ago,” said an official at a commercial bank.

Banks are raising mortgage loan interest rates in line with the financial authorities‘ tightening control of household loans.

As of July 26, the annual mixed (fixed) interest rates for mortgage loans at KB Kookmin, Shinhan, Hana, and Woori banks, based on five-year bank bonds, ranged from 2.9 percent to 5.26 percent.

Compared to a week earlier on July 19, when they stood at 2.84 percent to 5.29 percent per annum, the lower end of the actual loan execution rate increased by 0.06 percentage point.

KB Kookmin Bank raised its mortgage loan rates by 0.13 percentage point and 0.2 percentage point on July 3 and 18, respectively, and will raise them by an additional 0.2 percentage point on Monday.

Shinhan Bank also plans to raise its mortgage loan rates by 0.1 to 0.3 percentage point on Monday.

Analysts say that the expectation for a benchmark rate cut in the second half of this year is fueling the demand for household loans.

There is also a forecast that the increase in household loans is likely to continue until September, when the second phase of the stress debt service ratio (DSR) system at banks and other financial institutions is implemented.