Rising Interest Rates Weigh on Households

Local households, specifically those who are in the low-income bracket, are anticipated to face a growing financial burden, as mortgage rates rise in line with rising market interest rates.

Some banks are considering that they may charge higher interest on those who are having lower credit ratings. They have decided to charge 0.1- to 0.2-percentage-point additional interest on those having the lowest credit ratings, and that will be balanced by rate cuts for prime customers.

rising interest rates

There has been a rise in yields on three-month certificate of deposits (CDs), which is the benchmark for banks lending rates. On Friday, yields on three-month CDs rose by 0.02 percentage points to 2.47 percent . They have also jumped by 0.03 percentage points Thursday.

In line with rising market rates, the rates of local lenders have also risen. The rate that is backed by collateral for Kookmin Bank, which is the nation’s largest lender, has shown a rise of 0.04 percentage points from a week ago to 2.71 to 4.41 percent.

As of the end of July, household loans has reached 402 trillion won. Of that, mortgages are estimated to be at 258 trillion won. Therefore, if there is just a little bit of rise in the rates then it can affect local households, throwing cold water on economic recovery.

The problem is that it is anticipated that market rates are to continue an upward trend, that is powered by signs of early economic recovery and growing expectations over the central bank’s possible rate hikes that is expected in the coming months.

There has been a jump on the yields on three-year and five-year treasury bills by 9 basis points and 13 basis points, respectively, to 5.06 percent and 5.94 percent on Friday from Wednesday.

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