By Lee Hyo-sik
Staff Reporter
The country's mortgage rates recently surpassed 8 percent for the first time ever as local lenders issued more certificates of deposits (CDs) to make up for shortfalls in savings deposit accounts, making borrowers pay higher interest rates.
Banks have been issuing more CDs to raise funds for loans as a growing number of people are taking money out of accounts at banks to invest in equities over the past few months amid the recent bullish market run.
With more CDs on the money market against weak demand, CD rates, the benchmark for variable-rate housing loans, have increased, pushing up interest rates on mortgages and other loans.
Analysts expect housing loan rates to continue to rise for the foreseeable future as people increase their investments in stocks amid the bullish run and low interest rates for bank deposits, forcing lenders to issue more CDs for funds.
Along with high prices of international crude oil and other raw materials, they say rising interest payments will likely reduce disposable incomes of the nation's households and dampen private consumption.
Reflecting rising CD rates, the Korea Exchange Bank (KEB) and other major lenders have raised their housing loan rates by 0.03 percentage points over the past week.
KEB recently increased its floating mortgage rates to 6.87-8.02 percent, up from 6.84-7.99 percent a week ago. It was the first time for housing loan rates here to exceed 8 percent.
Woori Bank and Shinhan Bank also raised their rates by 0.03 percentage points to 6.28-7.78 percent and 6.38-7.78 percent, respectively. Kookmin Bank hiked its rates to 6.04-7.64 percent from 6.03-7.61 percent.
The 91-day CD rate stood at 5.39 percent last Friday, the highest since July 2001, driving up interest rates.
Borrowers of floating-rate mortgages extended by Shinhan Bank are now paying 7.78 percent interest, up 2.32 percent from three years ago. If a borrower took out a 100 million won mortgage from Shinhan in November 2004, an additional 2.3 million won must now be paid per year.
Bank officials project housing loan rates will continue to head upward toward the year's end and next year. They say the shift of money from banking accounts to brokerages' cash management accounts (CMAs), as well as rising investment in stocks and other financial products for higher returns will force lenders to issue more CDs, hiking rates and placing a heavier interest rate burden on borrowers.
They also said lenders will issue CDs at a faster pace for the remainder of the year because the introduction of Basel II, an international accord to set up more rigorous risk management requirements in the banking sector, next year will likely make it more difficult for them to raise funds.