Despite Soaring Home Prices, Mortgage Loans Surge by 5.2 Trillion Won

home prices in Seoul have surged

Recently, home prices in Seoul have surged, leading to a significant increase in the balance of mortgage loans from major banks. Despite efforts by banks to tighten mortgage loan conditions, the demand for loans remains high due to expectations of continued home price increases.

This month, the balance of mortgage loans from major banks has increased by over 5 trillion won, driven by the ongoing rise in home prices in Seoul. According to data released on the 28th, the balance of household loans from the top five banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reached 713.3072 trillion won as of the 25th, up by 4.7349 trillion won from the end of June, when the balance was 708.5723 trillion won. The increase this month exceeds 5 trillion won, marking the largest monthly rise since July 2021.

In particular, the balance of mortgage loans, which was 552.1526 trillion won at the end of June, has increased by 5.2589 trillion won by the 25th of this month, driving the overall increase in household loans. If this trend continues, the increase in both household loans and mortgage loans is expected to be similar to last month.

Expectations of a recovery in the real estate market are a major factor driving the increase in household loans. According to the Korea Real Estate Agency, the average apartment sales price in Seoul rose by 0.30% in the fourth week of this month compared to the previous week, marking 18 consecutive weeks of increases. This is the largest increase in over 5 years and 10 months.

Banks have been raising mortgage loan interest rates in line with the financial authorities' tighter management of household loans. As of the 26th, the mixed-rate (fixed) mortgage loan rates at KB Kookmin, Shinhan, Hana, and Woori Banks ranged from 2.900% to 5.263% annually. Compared to the rates on the 19th (2.840% to 5.294%), the lower bound of the actual loan rates has increased by 0.060 percentage points.

KB Kookmin Bank has raised mortgage loan rates by 0.13 percentage points and 0.2 percentage points on the 3rd and 18th of this month, respectively, and plans to increase them by an additional 0.2 percentage points on the 29th. Shinhan Bank also plans to adjust mortgage loan rates up by 0.1% to 0.3% on the 29th.

Despite having passed through periods of 5% to 6% interest rates, the prospect of a rate cut in the latter half of the year is fueling continued household loan demand. A bank official commented, “Even though banks are strengthening loan screenings and raising additional interest rates, the market interest rates have decreased, making the ‘rate effect’ minimal,” adding, “Currently, it is challenging to curb the explosive demand for loans.”

There are also expectations that the increase in household loans will continue until the implementation of the second phase of the stress Total Debt Service Ratio (DSR) regulation in September. A banking sector official noted, “There is continued high demand for loans before the second phase of the stress DSR is implemented.”

The interplay between rising home prices and increasing loan demand is having a significant impact on the financial market. Despite banks' efforts to tighten conditions and raise interest rates, the strong expectations for continued home price increases are sustaining high loan demand. It remains to be seen how future regulatory measures and interest rate policies will affect this trend.