Mortgage add-on rates at 7-year high at major banks

Add-on rates on household mortgage loans at major South Korean banks have climbed to their highest level in about seven years as lenders tighten controls on total household credit volume. With elevated spreads compounding an already high interest rate environment, the burden on borrowers seeking new loans is expected to grow.

According to the Korea Federation of Banks, the average add-on rate on new installment-based mortgage loans issued in June by the five major banks — KB Kookmin Bank, Shinhan Bank, Woori Bank, Hana Bank and NH NongHyup Bank — rose to 3.27%, up 0.04 percentage points from 3.23% the previous month. That is the highest level since the federation began compiling the data in July 2019.

Banks calculate lending rates by adding a spread to a base rate, with the spread reflecting operating costs, legal expenses, risk premiums and adjustment factors.

Among the five lenders, Shinhan Bank posted the lowest add-on rate at 2.41%. NH NongHyup Bank was the highest at 3.93%, followed by Hana Bank at 3.50%, Woori Bank at 3.36% and KB Kookmin Bank at 3.13%.

The average deposit-lending rate gap on equivalent mortgage products at the five banks narrowed to 1.48% in June from 1.56% in May, a decline of 0.08 percentage points.

"There has been an element of keeping add-on rates elevated as part of efforts to curb mortgage lending and manage overall household loan volumes," a commercial bank official said. "At the same time, deposit rates have risen, which has actually compressed the deposit-lending spread."