By Kim Jae-won
Interest payments on household debt hit a record high last year as eased lending rules increased demand for mortgages, the government statistical agency said Sunday.
Each household paid 66,000 won ($58) in interest on debts on a monthly basis in 2010, up 16.3 percent from 57,000 won the previous year, according to Statistics Korea. This is the highest figure since 2006, when the agency began to collect such data.
This means each household, including those with just one person, spent 788,700 won per year or an aggregate 13.53 trillion won. However, this data only covers home loans and other direct household expenditures, not covering those for business purposes, so the statistical office said that, if other loans are included, the amount could be much higher.
The country's household debt grew at the fastest pace in more than eight years in the fourth quarter of last year, according to the Bank of Korea. Household debt stood at 795.4 trillion won in December, up 25.3 trillion won from three months earlier, the central bank said. The fourth-quarter reading marked the steepest expansion since the third quarter of 2002, when 26.8 trillion won in growth was registered.
According to analysts, the rise in debt was by and large attributed to regulators.
In August 2010, the Financial Services Commission (FSC) announced that it would temporarily ease mortgage lending and tax rules to boost the sluggish housing market, which had been hit sharply by the global financial crisis.
The financial regulator eased the debt-to-income (DTI) ratio rule, which limits the total amount of loans in accordance with to a person’s annual income. Three affluent districts in southern Seoul ― Gangnam, Secho and Songpa, were excluded.
Experts say the amount of interest will continue to rise as the central bank is expected to hike its key interest rate by up to 1 percentage point this year in an effort to fight inflation and normalize its loose monetary policy.
The central bank froze the key interest rate at 2.75 percent in February, but most analysts expect that the BOK will raise the benchmark interest by 0.25 percentage points next month to cooperate with the government’s policy to fight inflation.
“The Bank of Korea is taking it’s time, clearly. But more hikes are in the pipeline,” said Kim Song-yi, an economist at HSBC, who specializes in the Korean market, in a report recently. “Another 25-basis-points tweak will arrive in March, and more after this. The base rate is currently 2.75 percent and will end the year at 3.75 percent,” she said.