Housing loan growth hits 5-year high

The monthly increase of outstanding mortgages rose to its highest point in five years last month amid record low interest rates.

The Bank of Korea cut its key rate to a new record low of 1.75 percent on June 11.

According to Korea’s seven largest banks, their collective housing-collateralized loans swelled by 9.27 trillion won ($8.27 billion) in June, compared to the previous month. The figure included borrowers’ conversion of their lending into state-led lower rate contracts.

Based on month-on-month comparisons, the May-June 2015 growth was the highest since the first-tier lenders started officially publicizing the relevant statistics in 2010.

They saw an average monthly growth of housing mortgages of below 4 trillion won over the past few years. For the May-June figure, the growth was 2.59 trillion won in 2014, 2.02 trillion won in 2013 and 1.28 trillion won in 2012.

Their total outstanding mortgage balance has surged 38.1 percent in five years -- since June 2010 to 321 trillion won in June 2015.

When converted loans on lower lending rates are included, the collective outstanding balance is estimated to have increased by about 120 trillion won, more than 50 percent, during the five years.

The Bank of Korea’s two rate cuts in the first half of the year is fanning the housing loan expansion. Monetary policymakers eased the benchmark rate from 2.25 percent per annum to 2.0 percent in March, and to 1.75 percent in June amid mounting concerns over low GDP growth from sagging exports and private consumption.

The average rate on housing-collateralized loans offered by KB Kookmin Bank dropped to an all-time low of 2.98 percent last month. The bank topped the list of outstanding home loans among the seven players.

Data from the Seoul Real Estate Info Provider showed that the number of apartment transactions came to 11,115, up more than 100 percent from 5,164 in transactions a year earlier.

A report from the Korea Institute of Finance had warned of risks from the rate cuts. It said many households, which were recklessly issued bank loans on low rates, could be saddled with a heavier burden of redemption when Korea raises rates again. If the U.S. Federal Reserve adopts a tighter monetary policy, as is expected later this year or in early 2016, the BOK could be compelled to follow suit, analysts said.

A research fellow from LG Economic Research Institute downplayed the positive effects of the rate cuts. He predicted that the effects would be restricted in terms of reinforcing the economy, citing the “structurally weak” consumer sentiment caused by the record household debt.

(kys@heraldcorp.com)