Rapidly Rising Mortgage Rates… Surpassing 7%, Heading Toward 8%?

Fixed-Rate Mortgage Holds in the 7.5% Range
Variable Rates Exceed 6% Including Online-Only Loans
Kookmin Bank Raises Household Loan Rates by 0.06–0.53 Percentage Points

The upper end of the fixed-rate mortgage rates offered by the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) briefly touched 7.6% before settling back to the 7.5% range. As KB Kookmin Bank’s move to uniformly raise household loan rates spreads to other major banks, and with the Bank of Korea potentially implementing consecutive (back-to-back) key rate hikes next month, there is a growing likelihood that fixed-rate mortgage rates will surpass 8%.

According to the financial industry as of July 31, this week’s fixed-rate mortgage rates (based on AAA-rated five-year bank bonds) stood at 4.81–7.59% on July 29 and 4.75–7.56% on July 30. Compared to 4.84–7.60% on July 28, the upper end has slightly declined, but it is still 0.04 percentage points higher than the 7.52% recorded a week ago, on July 22. Compared to late last year, when fixed-rate mortgage rates ranged from 3.93% to 6.23%, the lower bound has risen by 0.82 percentage points and the upper bound by 1.33 percentage points.

The rise in fixed-rate mortgage rates is attributed to the increase in AAA-rated five-year bank bond rates, which serve as the benchmark for fixed-rate mortgages. This figure climbed from 3.409% at the end of last year to 4.337% on July 29, a jump of 0.928 percentage points. At the beginning of this year, the upper end of mortgage rates hovered in the low to mid-6% range. However, due to the impact of the war in the Middle East, bank bond yields jumped by about 0.5 percentage points within a month after the end of February, resulting in the fixed-rate mortgage upper bound exceeding 7% on March 27. This was the first time in three years and five months that the upper bound surpassed 7%. On June 10, the rate exceeded 7.5% for the first time in three years and seven months. With the enforcement of the revised Bank Act this month, which prevents banks from including additional spreads in new or renewed loan rates, the rates fell to around 7.3–7.4%. However, following the Bank of Korea’s base rate hike of 0.25 percentage points on July 16, the upper bound has risen back to the 7.5% range.

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For variable-rate mortgage loans (six-month term), the four major banks (excluding Nonghyup Bank, which has suspended face-to-face services) posted rates ranging from 4.09% to 5.57%. However, when including Nonghyup Bank’s non-face-to-face variable-rate mortgage offerings, the upper end rose to 6.38%. The rise in variable-rate mortgage rates is due to the Cost of Funds Index (COFIX), which is the benchmark rate for variable mortgages, increasing for three consecutive months and exceeding 3.05%—the highest in a year and five months.

Banks expect further increases in variable-rate mortgages, as major deposit and savings rates and bank bond rates—core components of COFIX—continue to climb. Unsecured loan rates surpassed 6% for the first time in two years since June 2024, reaching 6.23% as of the previous day.

Within the banking sector, the consensus is that upward pressure on lending rates will continue. Among the five major banks, KB Kookmin Bank, which maintains a median household loan rate, raised rates for mortgages by 0.06–0.53 percentage points and for both jeonse loans and unsecured loans by 0.15–0.49 percentage points, starting this day, as part of strengthening its household loan management. If other commercial banks follow KB Kookmin Bank’s lead, the upper bound of fixed-rate mortgage rates is likely to exceed 8%. While other banks say they will wait and watch household lending trends a bit longer before making a decision, the utilization rate for the five major banks’ annual household loan growth target (4.4463 trillion won) surged from 80% as of July 9 to 108% by July 15, and has not dropped below 100% since then, indicating a need for additional measures.

Adding to this, another key point is the Bank of Korea’s likely move to raise the base rate by an additional 0.25 percentage points at the Monetary Policy Board meeting scheduled for August 27. Last month, core inflation reached 2.5%, slightly above the management target of 2.0%. At the same time, in the second quarter of this year, real gross domestic income (GDI)—a measure of real purchasing power—grew by 15.6% year-on-year, further intensifying demand-side inflation pressures. A commercial bank official commented, “KB Kookmin Bank has long experienced strong demand for household loans, even dating back to its days as Housing Bank. As household lending has been rising sharply again recently, it appears the bank took preemptive action. Other banks will consider factors such as whether the utilization rate of household loan growth targets improves and whether the Bank of Korea raises the key rate, before making their decisions.”

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