Loan interest rates soar back to 6% range after two years... Bank lending becomes even harder. Yonhap News.  As market interest rates have recently surged, bank loan rates have climbed back into the 6% range for the first time in approximately two years.

The already tight bank lending channels, further constricted by real estate loan regulations, are now almost completely shut down.

◇ Mortgage variable rates also up 0.26%p... COFIX increase amplified by regulations

According to financial industry sources on the 16th, the mixed (fixed) mortgage rates at KB Kookmin, Shinhan, Hana, and Woori Banks, based on 5-year corporate bonds, ranged from 3.930% to 6.060% as of the 14th.

The 6% range for mixed mortgage rates at these four major banks is the first time in approximately two years since December 2023.

Compared to two months and fifteen days ago, at the end of August (3.460% to 5.546% annually), the upper limit has increased by 0.514 percentage points (p) and the lower limit by 0.470%p.

This is because the 5-year corporate bond rate, the main benchmark for mixed rates, rose by 0.563%p from 2.836% to 3.399% during the same period.

Credit loan rates (for Grade 1 borrowers, 1-year maturity) also increased, from 3.520% to 4.990% annually to 3.790% to 5.250% annually, with the upper limit rising by 0.260%p and the lower limit by 0.270%p. This is attributed to a 0.338%p increase in the benchmark 1-year corporate bond rate during the same period.

Mortgage variable rates (based on new COFIX, 3.770% to 5.768% annually) also saw their upper limit rise by 0.263%p during the same period.

Although the benchmark COFIX rate only increased by 0.01%p, it is presumed that banks have managed the rate increases to be higher than the benchmark due to strengthening regulations on real estate and household loans.

◇ KB to increase fixed and mixed rates by 0.09%p on the 17th... Reflecting market rate hikes

The recent surge in loan rates over the past few months is due to the increase in market interest rates, such as corporate bonds, as doubts grow about the continuation of monetary easing policies by the Bank of Korea and the U.S. Federal Reserve (Fed), including interest rate cuts.

Notably, on the 12th, Bank of Korea Governor Lee Chang-yong stated in a foreign media interview that "the magnitude, timing, and whether to pivot on rate cuts depend on new data," leading to the highest year-to-date yields for South Korean government bonds across all maturities except for the 1-year term in the Seoul bond market.

This was interpreted by the market as Governor Lee's remarks suggesting a pause or potential increase in interest rates.

Combined with anxieties over housing prices and exchange rates, the uncertainty surrounding the Bank of Korea's base rate cut this month means that the upward trend in loan rates, mirroring market rates, and the shrinking household loan limits are expected to continue at least until the end of the year.

Under the Debt Service Ratio (DSR) regulations, a higher interest rate used in the calculation formula leads to a larger estimated principal and interest repayment amount, thus reducing the maximum loanable amount.

KB Kookmin Bank plans to further increase its fixed and mixed mortgage rates by 0.09%p, reflecting the rise in the benchmark 5-year financial bond rate, starting from the 17th. Consequently, the rates for these products will increase to 4.11% to 5.51%.

Not only KB Kookmin Bank, but other banks that reflect market rates on a weekly or daily basis are also expected to progressively incorporate the rise in market rates into their mortgage rates.

Yonhap News