Mortgage rates hit near 4-year high even as deposit rates fall

The weighted average interest rate on new mortgage loans at deposit-taking banks climbed to 4.66 percent per annum last month, the highest level in three years and nine months, driven by rising short-term benchmark rates, higher Bogeumjari loan rates and a declining share of variable-rate loans, which tend to carry lower rates.

The Bank of Korea released its weighted average interest rate data Wednesday, showing the rate rose 0.18 percentage points from the previous month. It was the highest since November 2022, when the rate stood at 4.74 percent.

The monthly increase was also the largest in nine months, since November last year, when rates rose 0.19 percentage points.

"Short-term benchmark rates and Bogeumjari loan rates rose, while the share of variable-rate loans — which carry relatively lower rates — shrank," said Kim Seong-jun, head of the Bank of Korea's financial statistics team.

The share of fixed-rate mortgages rose 3.4 percentage points to 35.3 percent, reversing a downward trend for the first time in 10 months.

The share of fixed-rate loans in total household lending also rose, climbing 2.5 percentage points from 21 percent to 23.5 percent.

Fixed-rate mortgage rates rose 0.12 percentage points to 4.88 percent, while variable-rate mortgage rates climbed 0.18 percentage points to 4.53 percent.

"As the increase in variable-rate loans narrowed the gap with fixed rates, the share of fixed-rate borrowing tends to rise — a pattern we have seen in the past as well," Kim said.

The rate on unsecured personal credit loans jumped 0.36 percentage points to 6.33 percent, the highest since January 2024, when it stood at 6.38 percent. The Bank of Korea attributed the increase to a rise in short-term bank bond rates — a key benchmark — as well as a growing share of loans to borrowers with low to mid-range credit scores.

The jeonse loan rate rose 0.16 percentage points to 4.35 percent.

With both mortgage and unsecured loan rates rising, the overall household lending rate climbed 0.12 percentage points to 4.76 percent, the highest since November 2024, when it stood at 4.79 percent.

Lending rates are expected to rise further in October. "Market rates have risen about 0.20 percentage points through Sept. 22, and if that trend continues, lending rates are likely to follow," Kim said, adding that "the extent of any increase will depend on banks' individual lending strategies."

Corporate lending rates rose 0.1 percentage points to 4.3 percent, with rates for large companies edging up from 4.18 percent to 4.21 percent and rates for small and medium-sized enterprises rising from 4.22 percent to 4.38 percent. Kim said the sharper increase for small and medium-sized enterprises reflected a base effect from the previous month, when rates had fallen due to low-rate policy loans extended by some banks.

The overall bank lending rate, covering both household and corporate loans, rose 0.13 percentage points to 4.4 percent.

The savings deposit rate on new transactions held steady at 3.21 percent per annum. The rate on pure savings deposits such as time deposits fell 0.02 percentage points to 3.14 percent, however, reversing a five-month upward trend for the first time since April, when it stood at 2.87 percent.

Rates on market-type financial products such as financial bonds and certificates of deposit rose 0.05 percentage points to 3.53 percent.

"A large volume of low-rate time deposits flowed into a specific bank last month, which caused some fluctuation," Kim said.

The spread between new lending rates and deposit rates — the lending-deposit rate gap — widened 0.13 percentage points to 1.19 percentage points, the first increase since February, when it stood at 1.43 percentage points.

The lending-deposit rate gap based on outstanding balances narrowed 0.02 percentage points to 2.22 percentage points.

Among non-bank financial institutions, deposit rates on one-year time deposits rose across the board except at mutual savings banks, which fell 0.33 percentage points to 3.88 percent. Credit unions rose 0.06 percentage points to 3.62 percent, mutual finance cooperatives gained 0.14 percentage points to 3.39 percent, and saemaul credit cooperatives climbed 0.09 percentage points to 3.57 percent.

Lending rates at mutual savings banks fell 0.28 percentage points to 10.23 percent, while credit unions rose 0.12 percentage points to 5.28 percent, mutual finance cooperatives gained 0.32 percentage points to 4.93 percent, and saemaul credit cooperatives edged up 0.02 percentage points to 5.17 percent.