SEOUL, Nov. 30 (Korea Bizwire) — Households may have to cope with higher mortgage rates as the Bank of Korea (BOK) raised its key interest rate for the first time in a year, market watchers said Friday.
In a widely anticipated move to cool property prices, the BOK lifted its key rate by 25 basis points to 1.75 percent earlier in the day.
According to the Korea Federation of Banks (KFB), COFIX, a benchmark lending rate for mortgage loans, was 1.93 percent for new loans Friday, marking its highest level in about three years. The COFIX rate for outstanding loans also came to 1.93 percent.
The KFB said the increase in COFIX has prompted domestic banks to mark up their mortgage loans.
Currently, COFIX-linked mortgage loans sold by KB Kookmin Bank have an interest rate of up to 4.8 percent.
Rising bank lending rates are feared to increase the debt servicing burden of local households, especially those in the low-income bracket.
According to an estimate by the BOK, a 0.25 percentage-point increase in bank lending rates would raise the household interest burden by 2.3 trillion won (US$2.1 billion).
Experts expressed concern that rising lending rates may make some bank loans turn sour as they follow a recent decline in household income.
South Korea’s outstanding household debt came to a record 1,514.4 trillion won in the July-September period, up 22 trillion won from three months earlier.