Interest rates on loans are soaring to record highs as restrictions continue to limit the amount of loans.
Average annual interest on new unsecured loans in November was 5.16% according to the Bank of Korea (BOK), up 0.54 percentage points on the month. The figure is the highest since 5.29% in September 2014 and the first time it has exceeded 5% since October 2014.
Mortgage interest also soared, rising 0.25 percentage points on the month to 3.51%. Interest is the highest since 3.54% in July 2014.
Interest on new loans to households averaged 3.61%, up 0.15 percentage points month on month and the highest since December 2018.
“Household loan interest has increased due to the increase in the benchmark interest rate, and is also influenced by banks increasing their interest margin to control household debt,” Song said. Jae-chang, head of the BOK’s financial statistics team.
“People with high credit are restricted to borrowing only up to their annual income, and the average interest on unsecured loans has increased as more was lent to people with average to low credit.”
The Financial Supervisory Service asked banks in August to limit the cap on unsecured loans to match borrowers’ annual income, and many banks followed suit.
People received an average of 1.57% interest for all new deposits, up 0.28 percentage points on the month. New term deposits had interest at 1.51%, up 0.23 percentage points, the highest since January last year.
Banks increased interest on deposits and savings by a margin greater than or similar to the increase in the policy rate, as many criticized banks for increasing interest on loans too much, but not much on deposits. The key rate increased by 0.25 percentage points to 1% in November.
There was a difference of 1.66 percentage points between new interest on deposits and interest on loans, reducing the difference by 0.12 percentage points on the month.
Although interest on loans has increased, many have chosen to borrow at a variable interest rate that changes periodically depending on the economic situation.
Of the total loans to households in November, 82.3% chose to borrow with a variable interest rate, up 3 percentage points over the month.
“There has been a decrease in mortgage lending, which accounts for a large portion of fixed interest loans, and the number of people borrowing at fixed interest has decreased,” said the BOK’s Song.
BY AHN HYO-SUNG, LEE TAE-HEE [[email protected]]