Banks' Interest Rates on Home Loans Keep Rising, but Impact Diminishes

Despite banks raising home loan interest rates weekly to manage household debt, the actual effect is becoming less significant due to declining bank bond rates

Despite banks raising home loan interest rates weekly to manage household debt, the actual effect is becoming less significant due to declining bank bond rates. This has led to the reappearance of 2% interest rates on home loans, despite an overall trend of increasing rates.

In recent months, major banks have been actively adjusting home loan interest rates, raising them weekly as part of their strategy to manage household debt. This trend includes significant rate hikes from KB Kookmin Bank and Woori Bank, among others. For instance, Woori Bank plans to increase its home loan rates by 0.1-0.4 percentage points starting August 12, marking its fourth rate hike in the past month. Similarly, KB Kookmin Bank has raised rates multiple times since last month, and Shinhan Bank has implemented four rate hikes in the past 20 days.

Despite these increases, the impact of the hikes appears to be lessening. Bank bond rates, which are a key factor in determining loan rates, have been falling steadily. For example, Shinhan Bank’s home loan rates recently decreased to 2.94% after previously surpassing 3%. This marks the return of 2% home loan rates, which had previously disappeared due to higher additional interest rates.

The decline in bank bond rates has been significant, with a recent drop of 0.103 percentage points in a single day alone. This is in contrast to the broader trend of increasing home loan rates, which have been rising due to heightened demand for household loans. Last month, the total household loan balance of the five major banks increased by 7 trillion won, the largest monthly increase in over three years.

A bank official stated, “Despite ongoing hikes in additional interest rates, the drop in benchmark rates has led to minimal visible changes in actual loan rates. We may need to implement further rate hikes in response to continuing increases in household debt.”

The ongoing adjustments in home loan interest rates highlight the complexities of managing household debt amid fluctuating benchmark rates. While banks continue to raise rates, the falling bank bond rates are mitigating the impact, causing previously rare 2% home loan rates to reappear. As the situation evolves, further rate hikes may be on the horizon to address the increasing demand for loans.