[비즈한국] A couple in their late 30s, identified as A, recently signed a contract for an apartment in Seoul. A has been visiting various banks to secure a mortgage, but is struggling due to interest rate gaps exceeding 0.3%p. While one bank offered a 3.6% rate for a five-year fixed term, it came with numerous conditions, such as requiring regular savings deposits and a minimum average balance of 2 million won. Believing that rates might fall further, A asked about a "6-month variable rate," but all the banks cited rates in the low 4% range and advised against it.
What is striking is that every bank claimed, "The recent decline in interest rates has already been reflected," and despite prevailing expectations for a Bank of Korea rate cut, they all insisted, "Rates are unlikely to fall significantly." A noted, "The banks all echoed the same sentiment, citing stricter loan regulations starting in July, and told me that even if the Bank of Korea lowers rates, they aren't likely to drop their own rates much."
B, another person in their late 30s who has been visiting properties to buy an apartment, lowered their target price range, assuming they would only pay the balance after July. With about 400 million won in savings, B had planned to borrow another 400 million won to buy a property in the 800 million won range, but the financial authorities' push for tighter regulations has caused hesitation. Although B works at a stable large corporation, they are the sole breadwinner and worry that a sharp rise in interest rates would increase the burden of principal and interest repayments. Anxious about the possibility of being denied a loan, B is currently considering properties in the 700 million won range to reduce the required loan amount.
Financial Authorities Maintain Stance to 'Make Borrowing Difficult'
The policy direction of financial authorities remains focused on "strengthening household debt management." A prime example is the implementation of the third phase of the Stress Debt Service Ratio (DSR), which will further tighten limits on mortgage loans starting in July.
Currently, loans are capped so that the DSR does not exceed 40% at commercial banks and 50% at savings banks. The Stress DSR calculates loan limits by adding a "stress rate" to the interest rate to account for the risk of future rate fluctuations; this serves to reduce loan limits and manage household debt burdens by factoring in potential interest rate volatility.
Once the third phase of Stress DSR is introduced, a stress rate of 1.5%—the floor (100%)—is expected to be applied to the interest rates for mortgage loans, credit loans, and other loans in the banking and non-banking sectors. Financial authorities had already introduced the second phase in September last year, applying stress rates of 1.2% in the metropolitan area and 0.75% in non-metropolitan areas to bank mortgages, credit loans, and non-bank mortgages. This is a continuous strengthening of the first phase, which was introduced in February last year by applying a 0.38% rate to bank mortgage loans.
Slight Rate Cuts, Yet Bank Loan Growth Stagnates
Banks are also in a difficult position. The fixed mortgage rates at the five major banks have fallen by up to 0.36%p over the past month. As of the 9th, fixed mortgage rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup) ranged from 3.04% to 5.54% annually, down 0.36%p from the 3.40% to 5.90% range a month ago. Analysts suggest this is a natural reflection of the decline in 5-year bank bonds, which serve as the benchmark for fixed mortgage rates, since the beginning of last month.
However, banks, which need to expand their own lending, are in a bind as they must navigate pressure from financial authorities while remaining competitive. In fact, bank lending is currently experiencing negative growth. Since most mortgage loans are government-backed policy loans, banks risk future profitability if they do not increase lending from their own sources. The balance of proprietary loans at the four major banks (KB Kookmin, Shinhan, Hana, and Woori) stood at 511.4069 trillion won at the end of April, a decrease of over 5.4 trillion won from 516.8209 trillion won four months earlier in December.
A bank official remarked, "Korean banks have a profit structure that relies heavily on real estate lending. If borrowing becomes difficult and loan assets shrink, our profitability will suffer. However, we cannot defy the authorities' directive to be cautious with household lending, so we find ourselves stuck, unable to aggressively lower rates despite the Bank of Korea's expected cuts, while keeping a close eye on various pressures."
While the market anticipates rate cuts during the Bank of Korea's Monetary Policy Committee meetings in May and June, observers suggest these will not quickly translate into lower mortgage rates. Although all committee members indicated in their forward guidance that they should "keep the possibility of a rate cut within three months open," there is concern that lowering loan rates could stimulate real estate prices.
The aforementioned bank official predicted, "When the new administration takes office, real estate policies will likely change, and banks will try to align with the new policy stance. However, since they will want to prevent a housing market spike, banks are unlikely to make any drastic changes to their mortgage products until then."