Household Debt Hits New Record of 1,896 Trillion Won…Mortgage Loans Alone Up 16 Trillion Won in Q2

In the second week of August, apartment prices in Seoul rose by an average of 0.32%, marking the largest increase in nearly six years and eleven months.

In the second week of August, apartment prices in Seoul rose by an average of 0.32%, marking the largest increase in nearly six years and eleven months. According to the Korea Real Estate Agency, as of August 12, the average selling price of apartments in Seoul increased by 0.32%, continuing a 21-week upward trend. This represents a 0.06 percentage point increase compared to the previous week (0.26%). This is the highest rate of increase since the second week of September 2018 (0.45%).

In the second quarter of this year, household debt (household credit) increased again, setting a new record for the highest amount ever. This surge is attributed to the expectations of a drop in interest rates and rising housing prices, leading to a significant increase in household loans, especially mortgages.

According to the Bank of Korea's '2024 Second Quarter Household Credit (Preliminary)' report released on the 20th, the total amount of household credit, including financial sector loans and credit from card companies and department stores, reached 1,896.2 trillion won by the end of the second quarter. This is an increase of 13.8 trillion won compared to the 1,882.4 trillion won at the end of the first quarter.

Household credit turned positive with an increase of 8.2 trillion won in the second quarter of last year, and has shown a rising trend for three consecutive quarters before decreasing in the first quarter of this year. The quarter-over-quarter growth rate was 0.7%, and the year-over-year growth rate was 1.9%, expanding the growth rate from the previous quarter (+1.6%), continuing an upward trend for the fourth consecutive quarter.

Among household credit, the largest component is household loans, which increased by 13.5 trillion won to 1,780 trillion won, reversing a previous decline. The quarter-over-quarter growth rate was 0.8%, and compared to the same period last year, it increased by 32.6 trillion won or 1.9%, marking a fourth consecutive quarter of growth.

Mortgage loans reached a record high of 1,092.7 trillion won, up 16 trillion won from the previous quarter. This increase is the largest since the third quarter of last year (+17.3 trillion won) and reflects a higher growth rate compared to the previous quarter’s increase of 12.4 trillion won.

The rise in mortgage loans is influenced by increased housing transactions. The number of housing transactions nationwide increased from 139,000 units in the first quarter of this year to 171,000 units in the second quarter.

Other loans decreased by 2.5 trillion won to 687.2 trillion won from the previous quarter. This decline was smaller compared to the previous quarter’s drop of 13.2 trillion won, influenced by seasonal factors such as loan repayments using bonuses.

Institutional changes show that the increase in loans from deposit banks expanded from 3.2 trillion won to 17.3 trillion won, driven by increased mortgage loans and a turnaround in other loans. Non-bank deposit-taking institutions saw both mortgage and other loans decrease, with the reduction shrinking from 8 trillion won to 3.9 trillion won.

Sales credit saw an increase of 300 billion won from a 2.3 trillion won decrease in the previous quarter due to expanded credit card usage. Personal credit card spending increased from 187.4 trillion won in the first quarter of this year to 189.9 trillion won in the second quarter, reversing a previous decline.

Kim Min-soo, head of the Bank of Korea's Financial Statistics Team, stated, “The current increase in household credit is not as high as the 30 trillion won quarterly increases seen in 2020 and 2021.” He added, “The government and the Bank of Korea are focusing on managing household debt gradually within the nominal growth rate rather than reducing it abruptly.” He also noted that additional measures for managing household debt, such as the 8.8 real estate supply measures and the September stress DSR (Debt Service Ratio) plan, are being prepared. “The effects on household debt need to be observed over time,” he said.

Additionally, the Financial Services Commission will introduce a second-phase stress DSR regulation starting next month, applying an increased interest rate of up to 1.2 percentage points for the Seoul metropolitan area.