The Korea Herald


Rising mortgage rates could dampen spending

By 최희석

Published : June 19, 2011 - 19:03

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Mortgage rates hit a 30-month high fueled by Bank of Korea’s rates hike this month, raising concerns for damaging effects to the economy.

On June 10, the central bank raised the benchmark rate by 0.25 percentage points to 3.25 percent in an effort to counter the rising inflationary pressure. Against market expectations, the central bank had kept the rates frozen for two consecutive months in April and May.

According to industry data, some of the country’s largest lenders have responded by raising interest rates, fueling worries that the increased burden on households ― whose borrowings have risen to record levels ― could dampen consumer spending.

The country’s largest commercial bank Kookmin Bank raised the interest rates on certificate of deposit-linked mortgage loans by 0.1 percentage point.

Following the changes, Kookmin Bank’s mortgage interest rates range from 5.27 percent to 6.57 percent, the highest seen since January 2009.

In June 2010, the bank’s mortgage rates ranged from 4.2 percent to 5.5 percent, which was raised to 4.73 percent to 6.03 percent in January.

Kookmin Bank is not alone in raising rates.

Woori Bank and Shinhan Bank also raised their interest rates on mortgage loans by 0.07 percentage points.

With the changes, Woori Bank’s mortgage rates range for 4.86 percent to 6.3 percent, while that of Shinhan Bank now ranges from 5.16 percent to 6.56 percent.

With household loans having risen to record levels, the burden on Korean households will increase.

According to statistics, debt held by individuals hit 1.006 quadrillion won ($926 billion) in March, breaking the 1 quadrillion won mark for the first time.

As such, a 1.13 percentage point rise in interest rates over a period of year would result in an increase of more than 11 trillion won in Korean households’ annual interest payments.

By Choi He-suk  (