Mortgage Loan Rates Climb to 4.655% as Household Debt Tops 2,000 Trillion Won
As mortgage loan rates (loans secured by homes) climbed to 4.655%, the outstanding balance of household loans exceeded 2,000 trillion won for the first time on record. Analysis suggests that for every 1 percentage point increase in rates, households must pay an additional 13 trillion won in interest annually. The ultimate burden of rising rates falls squarely on households.
This latest rate hike stems from the U.S. Federal Reserve's first tightening move in three years and two months. Park Hyung-jung, an economist at Woori Bank, said, "October will likely serve as a pause meeting," while adding, "If high U.S. rates persist, it will be difficult for the Bank of Korea to stop raising the base rate in the early 3 percent range." He added, "Looking ahead to next year, the base rate could rise to around 4 percent." Ju Won, head of research at the Hyundai Research Institute, analyzed, "The exchange rate is the biggest problem. Raising rates immediately in October may not be easy, but if the won-dollar rate fluctuates suddenly, there could be pressure to raise the base rate."
If the rate gap between South Korea and the United States widens, foreign investment funds are more likely to flow out of the domestic market and into the U.S. As a result, the won-dollar exchange rate rises, pushing up import prices, which in turn feeds back into pressure to raise the base rate. The won-dollar exchange rate returned to the 1,380-won range within three weeks amid the fallout from the U.S. rate hike.
The impact on the KOSPI, however, was limited. According to the Korea Exchange, the KOSPI closed at 6,715.41, down 2.56 points (0.04 percent) from the previous session. Han Ji-young, a researcher at Kiwoom Securities, said, "Historically, the Fed's rate hikes alone have rarely led to a sustained downturn in the stock market." At a financial situation review meeting held Thursday morning at the Financial Supervisory Service headquarters in Yeouido, Seoul, Governor Lee Chan-jin said, "Volatility in the domestic stock market could increase further due to potential outflows of foreign funds following the U.S. rate hike and a possible slowdown in artificial intelligence (AI) investment."
