Korea's household loan surge puts rate-cut plans under pressure
The value of loans rose by US$4.5 billion in June from a month earlier in the biggest increase since August 2024, according to Bank of Korea data on Wednesday (Jul 9). Housing loans posted the sharpest gains in nine months.
Compared with a year ago, lending increased 4.1 per cent in June, marking the fourth consecutive month of year-on-year growth above 4 per cent. While the pace remained unchanged from the previous month, it remains a cause for concern as it continues to outpace inflation.
Mortgage lending has continued to accelerate in recent months, fuelled by a rebound in housing transactions. Other household borrowing also rose, supported by steady demand for stock investment and living expenses, the central bank said in a statement.
'The increase in home transactions over the past few months appears to have been reflected with a time lag, leading to a continued expansion in loan growth since April,' Park Mincheol, senior manager of financial market affairs team, told reporters in a briefing on Wednesday. 'Given that housing transactions rose sharply again in May and June, we expect this upward trend to continue and further accelerate in July and August as the lagged effects play out.'
For the BOK, rising household debt adds to caution around cutting interest rates too quickly as it tries to support an economy grappling with the fallout from US trade tariffs. The central bank is expected to keep rates steady at its meeting on Thursday as policymakers weigh risks tied to household debt, an overheated real estate market, and potential spillovers from US trade actions.
The government has stepped in with a new cap on the maximum amount of mortgage loans for home purchases in the greater Seoul area, but it remains unclear whether those efforts are enough to rein in household borrowing risks.
In May, the BOK lowered its key interest rate by a quarter percentage point and downgraded its growth outlook for the year, citing the drag from US trade tariffs. Governor Rhee Chang-yong signalled that further rate cuts remain on the table, though the bank is proceeding cautiously given concerns about household debt and soaring property prices. BLOOMBERG
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