South Korea household loans see rising variable rate share

The proportion of variable-rate loans within South Korean bank household debt reached 57.3% as of the end of August, according to data from the Bank of Korea. This represents a 4.3 percentage point increase compared to August of the previous year, when the share stood at 53.0%.

Borrowers have increasingly favored variable rates to minimize initial interest burdens, as variable mortgage rates were 0.35 percentage points lower than fixed rates in August. However, as the gap between the two types narrows and variable rates rise more sharply than fixed rates, there has been a recent uptick in fixed-rate selections for new loans. For instance, the share of fixed-rate new mortgage loans rose from 31.9% in July to 35.3% in August.

Despite this shift in new lending, the high concentration of variable rates in existing debt balances raises concerns regarding increased repayment burdens if market interest rates continue to climb. Following consecutive base rate hikes by the Bank of Korea, which brought the rate to 3.00%, financial authorities are looking to expand the supply of long-term fixed-rate mortgages to mitigate household debt risks.