Mortgage rates top 7% in South Korea

Fixed mortgage rates in South Korea have climbed above 7%, increasing the burden on heavily leveraged homebuyers who stretched their finances to enter the housing market.

The rise reflects shifting expectations that central banks in South Korea and abroad may keep policy rates higher for longer, a view increasingly priced into market yields that guide lending rates. With oil prices surging amid tensions in the Middle East, inflation concerns have intensified, weakening expectations for rate cuts by major economies.

● Mortgage rates exceed 7% for first time in 41 months

According to industry data released March 29, mixed fixed-rate mortgage products at the country’s five major lenders, KB Kookmin, Shinhan, Hana, Woori and NH NongHyup, ranged from 4.410% to 7.010% as of March 27. It marks the first time since October 2022 that such rates have crossed the 7% threshold.

The increase was driven largely by a sharp rise in bank bond yields, the benchmark for fixed mortgage rates. The yield on five-year bank bonds rose to 4.119% on March 27 from 3.499% at the end of last year, an increase of 0.620 percentage point. Since late last month, when the conflict involving the United States, Israel and Iran escalated, those yields have climbed 0.547 point, while mortgage rates rose 0.310 point over the same period.

As borrowing costs rise, more consumers are struggling to meet principal and interest payments. Data from the Bank of Korea’s Economic Statistics System show the nationwide mortgage delinquency rate rose to 0.29% in January from 0.27% a month earlier.

Market rates are unlikely to ease in the near term. Prolonged instability in the Middle East has fueled concerns about stagflation, a combination of slowing growth and persistent inflation. In response, major central banks are reconsidering plans for rate cuts and may instead hold rates steady.

Lee Seung-hoon, head of the economic research center at the KB Financial Group Management Institute, said prolonged high oil prices could prompt central banks to raise rates again to contain inflation. He added that the eurozone may move ahead of the United States in tightening, as inflation there is easing more slowly and wage pressures remain elevated.

● Higher add-on rates loom for large mortgages

Add-on rates for high-value mortgages may rise from next month, as banks face higher contribution requirements to the Korea Housing Finance Credit Guarantee Fund.

Banks are widely expected to pass on the added cost to borrowers. A revised contribution scheme, discussed by financial authorities in January, will take effect April 1. Financial institutions are required to contribute to the fund for housing-related lending such as mortgages and jeonse loans. Previously, contribution rates varied by loan type, but the new system will base them on loan size. As a result, banks that issue more loans exceeding 400 million won will bear greater costs.

The higher burden is likely to lead banks to tighten screening for large mortgage loans. “Some lenders may begin reflecting the increased contribution costs in add-on rates,” a banking industry official said.

Experts say the current environment of elevated market rates may persist, requiring adjustments in personal financial strategies. They advise borrowers to reduce debt where possible and increase allocations to relatively safer assets such as deposits or the U.S. dollar.


강우석 기자 wskang@donga.com