South Korea's mortgage loans have surged significantly in recent months, causing a major impact on the financial market.
In August 2024, mortgage loans from banks increased by a staggering 8.2 trillion won, marking the largest increase ever recorded.
As a result, the overall increase in household loans also reached its highest level in the past three years. With government regulations and policies on household loans showing inconsistency, it is crucial to understand what this surge in loans means.
According to the Bank of Korea and the Financial Services Commission, by the end of August, the total balance of household loans from banks increased by 9.3 trillion won from the previous month, reaching 1,130 trillion won. This represents the largest monthly increase since July 2021 and the ninth-largest increase ever recorded. Notably, mortgage loans alone rose by 8.2 trillion won, bringing the total mortgage loan balance to 890.6 trillion won by the end of August. This is the largest increase since the statistics began in 2004.
The increase in loans can be attributed to a rise in housing transactions and the number of new homes entering the market, particularly in the metropolitan area. According to data from the Ministry of Land, Infrastructure, and Transport and Real Estate 114, the number of apartment transactions nationwide increased from 40,000 units in March to 48,000 units in July, with transactions in the metropolitan area rising from 17,000 units in March to 27,000 units in July.
Additionally, the demand for loans during the summer vacation season and the recent stock market downturn, which led to increased demand for low-priced stocks, contributed to the rise in credit loans. In August, other types of loans increased by 1.1 trillion won, and household loans from second-tier financial institutions also rose, with mortgage loans and other loans increasing by 300 billion won and 200 billion won, respectively. As a result, overall household loans increased by 9.8 trillion won.
The postponement of the Stress DSR (Total Debt Service Ratio) implementation by two months also influenced the increase in loans. Park Min-chul, Deputy Director of the Bank of Korea’s Market Analysis Team, explained, “Housing transactions in Seoul increased in May and June, and loans are affected with a 2-3 month lag. There is also a tendency for preemptive borrowing when loan regulations are anticipated.”
However, the Bank of Korea forecasts that the increase in household debt will slow down in September. Park noted, “The increase in September is expected to be lower than in August due to policy effects and other factors.”
The Financial Services Commission also emphasized that it is time to more actively manage household debt, citing the increase in loans due to the rising real estate market in Seoul and the metropolitan area, as well as stock investment demand.
The record increase in mortgage loans and overall household loans in August sends a significant signal to South Korea's financial market. With the current inconsistency in government policies and regulations, managing household debt and ensuring financial stability remain critical challenges.
Maintaining policy consistency and reliability is essential, and efforts to secure financial market stability are necessary.
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