51 districts in Greater Seoul have loan ratios above 60%, with outer areas and mid-to-low-priced markets most exposed

With the Bank of Korea's benchmark interest rate raised to 2.75% for the first time in three and a half years — and the central bank leaving the door open to further hikes — attention is turning to the impact on a real estate market heavily reliant on debt. In 51 of 85 municipal districts across Greater Seoul, the average loan index for collective buildings already exceeds 60, and analysts expect financing pressure from rate increases to hit hardest first in outer Seoul and mid-to-low-priced areas in Gyeonggi Province and Incheon, where so-called "yeongkkul" — buying by stretching every available source of credit — has been most concentrated.

According to the court registry information plaza's loan index for collective buildings — which covers apartments, row houses, multi-family homes and officetels — 51 of 85 municipal districts in Seoul, Gyeonggi Province and Incheon, or 60 percent, recorded an average loan index above 60 in June. The index measures the ratio of the mortgage collateral amount set against the purchase price of a collective building: for example, if a buyer purchases an apartment for 1 billion won ($672,000) and the mortgage collateral is set at 600 million won, the loan index is 60.

In Seoul, Jungnang-gu was the only district to exceed the 60 threshold, posting 60.04. In Gyeonggi Province, Goyang's Ilsandong-gu led with a reading of 79.32 — approaching 80 — followed by Bucheon (76.15), Dongducheon (73.47), Icheon (70.72) and Suwon's Jangan-gu (70.43). Among non-regulated areas, Suwon's Gwonseon-gu (64.15), Namyangju (64.48) and Hwaseong's Byeongjeom district (63.74) also posted elevated readings. Guri (61.2), Yongin's Giheung-gu (61.41) and Hwaseong's Dongtan district (68) — all newly designated as land transaction permit zones and regulated areas this month — likewise recorded high loan ratios.

In Incheon, all 11 municipal districts recorded loan indexes above 60, reflecting broadly high debt dependence across the city. Yeonsu-gu, home to the popular Songdo International New Town, came in at 61, while Seo-gu (72.29), Yeongjong-gu (76.62) and Ganghwa-gun (74.25) all surpassed 70.

Experts consider areas with a loan index of 60 or above to be directly exposed to the increased financial burden from rate hikes. Following the government's Oct. 15 real estate measures last year, differentiated loan limits based on housing prices were introduced, meaning more credit is available in mid-to-low-priced areas. Analysts note that buyers in those areas tend to push their debt-financed share of funding to the limit — often because they lack sufficient equity — making them more vulnerable even to modest rate movements.

Song Seung-hyeon, chief executive of Urban and Economy, said areas where the loan ratio runs between 70 and 80 percent are largely populated by buyers with relatively low purchasing power and limited financial capacity, making them more sensitive to interest costs even from a 0.25 percentage point hike. "Generally, once the loan ratio exceeds 60 percent, there is pressure from rate increases," he said.

In practice, the loan ceiling for homes priced above 2.5 billion won was sharply cut to 200 million won, which has kept loan indexes relatively low in high-end districts: Gangnam posted 35.79, Seocho 51.39 and Songpa 40.03, while Yongsan came in at 44.58. Han River belt areas including Gangdong (45.37), Dongjak (43.86), Mapo (47.04) and Seongdong (37.17) were also on the lower end. By contrast, outer Seoul districts beyond Jungnang-gu — including Nowon (59.3), Dobong (55.18), Gangbuk (54.32), Guro (56.34), Geumcheon (58.15), Eunpyeong (55.69) and Gangseo (54.16) — clustered just below the 60 mark, reflecting high leverage levels.

Against this backdrop, analysts say the impact of rate hikes on the housing market will inevitably vary by region.

Yang Ji-young, a senior adviser at Shinhan Premier Pathfinder, said the current rate increase is not the kind of shock tightening seen in 2021 and 2022, noting that the benchmark rate is already at a considerable level and mortgage rates are already elevated, making a large-scale release of listings from a single hike unlikely. "But if the benchmark rate is raised again within the year or next year, and bank mortgage rates climb further, the situation will change," she said.

She added that "any correction driven by rate hikes will appear first in highly leveraged outer areas and regions with heavy investment demand, while prime locations will be relatively more resilient," noting that outer Seoul and the broader metropolitan area, which are more sensitive to financing costs, could face greater pressure to release listings and see price corrections if the burden of holding costs rises further due to tax reforms.

Meanwhile, the Bank of Korea estimates that a 0.25 percentage point increase in the benchmark rate would raise the annual interest burden on housing loan borrowers by 1.8 trillion won in aggregate, lifting the average per-borrower annual interest cost from 5.84 million won to 6.14 million won — an increase of roughly 300,000 won. A 0.5 percentage point rise would add 3.7 trillion won to the total annual burden, and a 0.75 percentage point increase would push it up by 5.5 trillion won.