By Kang Seung-woo
Nearly half of housing loans are used for other purposes than purchasing home, the central bank and financial watchdog said Monday.
There are stirring concerns that the trend may dig the nation’s already-serious household debt into a deeper hole, observers say.
According to the Bank of Korea (BOK) and Financial Supervisory Service (FSS), the outstanding balance of house-backed loans from banks came to 289.9 trillion won ($273.96) as of the end of the first quarter this year, up 1.9 percent from three months ago. The figure marked the 15th straight quarterly increase.
In addition, 42 percent of the newly-extended home equity loans in the cited period were spent for other uses, including living expenses, compared with 36 percent at the end of December last year.
After getting a housing loan, if a borrower uses it to buy a home or for home registration within three months, it is counted legitimate.
It is not mandatory for a borrower to use a home-backed loan in home acquisition.
“The number of those who spend housing loans on other uses has been on the increase due to the slumping property market and soaring cost of jeonse, or a two-year lease housing contract,” said an official of the FSS.
He added that its interest rates, which are lower than those of unsecured loans, also support the trend.
Mortgage rates at banks averaged 4.85 percent in the first three months of 2011, compared to 6.26 percent by unsecured lending.
Market watchers are concerned that growing mortgages for consumption rather than investment can add fuel to the burning household debt.
The government is also taking heed of the current situation.
“As a large scale of home-backed loans have been growing and so have other expenses, we are monitoring the situation closely,” BOK Governor Kim Choong-soo said Thursday after the central bank kept its key interest rate steady at 3.25 percent.
“The proportion of housing loans for other uses is likely to continue to increase in the near future,” said a Seoul-based economist.
“Buying homes with a mortgage is a part of an investment, but the remaining use end up mainly on consumption. If borrowers spend loaned money without using it to make more, they will be unable to repay the debt causing the nation’s household debt to get even worse.”