Household debt exceeded KRW 2,000 trillion for the first time in the second quarter of this year as ..

12.2 trillion won in mortgage loans and 12.8 trillion won in other loans
4 years and 6 months
Boomerang’s surge in household debt interest rates

사진 확대 A view of a bank lending window in downtown Seoul. [Yonhap News]

Household debt exceeded KRW 2,000 trillion for the first time in the second quarter of this year as mortgage loans increased again as housing transactions increased, and credit loans increased due to strong stock markets. In particular, it is notable that other loans, including credit loans, have increased more than mortgage loans due to demand for stock investment.

The problem is that in the face of the largest increase in household debt ever, interest rates on loan indicators such as the Bank of Korea’s benchmark interest rate trend and COFIX are rising again, and the burden of repayment of principal and interest by zero workers and borrowers is turning on warning lights.

According to the Bank of Korea on the 19th, the balance of household credit as of the end of the second quarter of this year was 2019 trillion won.

It increased by 25.9 trillion won from the end of the first quarter, the largest increase in four years and nine months since the third quarter of 2021 (+34.8 trillion won). The increase nearly doubled from the previous quarter.

Household credit refers to comprehensive household debt, which includes loans received by households from banks, insurance companies, lenders, and public financial institutions, plus the amount of card use (sales credit) before payment.

Korea’s household credit continued to grow for nine consecutive quarters since the second quarter of 2024.

사진 확대 [Bank of Korea]

Outstanding household loans out of household credit reached 1891.3 trillion won at the end of the second quarter, up 24.9 trillion won from the end of the first quarter. It was also the largest increase since the third quarter of 2021 (+34.6 trillion won).

Among household loans, mortgage loans (110.8 trillion won) increased by 12.2 trillion won and other loans (700 trillion won) such as credit loans increased by 12.8 trillion won, respectively.

Among them, the increase in other loans was the largest since the third quarter of 2021 (+13.7 trillion won).

It is also the first time since the second quarter of 2021 that other loans have increased more significantly than mortgages.

사진 확대 [Saekyung DB]

“The increase in other loans seems to be due to the demand for equity investment funds,” said Kim Sung-joon, head of the Bank of Korea’s financial statistics team. “The increase in credit loans was unusually larger than the previous size.”

The problem is that interest rates are also running at a time when household debt is increasing. If the Bank of Korea continues to raise its key interest rate to curb prices, the interest burden on households will increase, which could lead to a contraction in consumption.

The central bank raised its key interest rate by 0.25 percentage points last month. It was the first rate hike in three and a half years. As inflationary pressure remains due to high oil prices, the possibility of additional interest rate hikes is also open.

Market interest rates are already on the rise. This is due to the central bank’s tightening stance and the rise in global bond rates.

사진 확대 Bank of Korea Governor Shin Hyun-song at a press conference on monetary policy direction. [Yonhap News]

According to the Korea Federation of Banks on the 18th, the COFIX (Finance Cost Index) based on the amount of new handling used as a standard for bank mortgage rates rose 0.13 percentage points from 3.05% the previous month to 3.18%. It rose for four consecutive months, the highest level in a year and seven months. Banks calculate actual loan interest rates by adding additional interest rates to indicator interest rates such as COFIX.

The bigger burden is that variable-rate loans are increasing rapidly. If interest rates rise, the interest burden on borrowers with variable interest rates will inevitably increase.

The proportion of variable interest rates among new household loans reached 77.3% in June. Compared to 38.1% a year ago, it has more than doubled. As of the end of June, the proportion of variable-rate loans also reached 56.1%.

“As banks set variable loan interest rates lower than fixed ones, borrowers seem to have chosen variable interest rates to reduce their immediate interest burden,” multiple financial sector officials said. “If the benchmark interest rate and market interest rate rise further in the future, the current low interest rate could return to a Boomerang that increases the interest burden on households.”