Banks’ housing loan rates are expected to move downward as money market rates are falling on expectations that the central bank will move to soften its monetary policy, analysts and bank officials said.
Analysts expect housing loan rates linked to money market rates are bound to fall. Interest rates on certificates of deposit (CDs), the benchmark in deciding the interest rate for floating-rate housing loans, fell 0.05 percentage point in September.
Falls in mortgage rates will reduce interest costs for households that have borrowed heavily to purchase homes on expectations of further rises in home prices. Currently, more than 98 percent of aggregate housing loans _ standing at some 250 trillion won _ are tied to floating interest rates, which move in line with the Bank of Korea’s call rate target.
“There is growing downward pressure on the CD rate. In the months to come, the CD rate may fall further,” said Cho Young-moo, an analyst at LG Economic Research Institute. “However, it’s too early to say whether the CD rate has entered a downward path for the midand long-term.”
The average housing loan rate stood at 5.86 percent in August, up 0.07 percentage point from a month earlier. But the upside is expected to be limited due to relatively stable money market rates.
The outstanding household debt currently stands at about 628 trillion won, including bank loans and bills payable. The fall in money market rates will ease household interest costs.
Kookmin Bank, the country’s largest lender, said the borrowing rates for its mortgage loans fell 0.04 percentage point last week, the sharpest fall in 11 months. The annual interest rates for its housing loans stood at a range between 5.44 and 6.64 percent on Monday, compared to a range of 5.48 to 6.68 percent a week ago. Kookmin’s minimum interest rate for housing loans has dropped 0.12 percentage point for the past five weeks.
“Since the CD rate reached its peak on Aug. 10 at 4.71 percent, it has steadily fallen on expectations that the Bank of Korea (BOK) will not increase its key interest rate further,” a Kookmin official said. “Speculation in the market that the BOK will lower its call rate soon to prevent an economic slowdown is putting downward pressure on it.”
Shinhan Bank, the secondlargest lender, said its housing loan rates fell 0.02 percentage point last week to 5.44-6.74 percent. Woori Bank, the thirdlargest lender, also saw its housing loan rates fall 0.03 percentage point last week. The central bank signaled in September that it has come closer to a neutral monetary stance regarding the call rate, which has been raised five times since October last year, and may change the direction of its monetary policy. According to Jeon Hyo-chan, a researcher at the Samsung Economic Research Institute, expectations are getting stronger in the market that the BOK may not move to raise its key rate further.
Source
http://times.hankooki.com/lpage/biz/200610/
kt2006100418085311900.htm
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