Rising geopolitical tensions in the Middle East pushed international oil prices above $100 a barrel, adding to upward pressure on market interest rates. If bond yields keep climbing, some analysts say mortgage rates could top 7%.
As of the 9th, the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — were offering five-year fixed (hybrid) mortgage rates of 4.14% to 6.74%, according to the banking sector. Compared with early this year’s 3.94% to 6.24%, the top end has risen 0.50 percentage points in about two months.
Mortgage rates have continued to rise even though the Bank of Korea has kept its policy rate unchanged for six straight meetings, largely because yields on financial bonds used as benchmarks have moved higher. The five-year financial bond yield jumped 43.1 basis points — from 3.497% in early January to 3.928% on the 9th. (One basis point equals 0.01 percentage point.)
Markets have also seen weakening expectations for rate cuts, while talk of a possible supplementary budget has raised concerns about heavier government bond issuance and supply-demand pressure. Analysts say the latest surge in oil prices has added to the upward push on bond yields.
West Texas Intermediate futures briefly rose to $111.24 on the morning of the 9th, breaking above the psychological $100 level for the first time since July 2022, when prices were driven up by the war in Ukraine.
With oil rising, the upper end of mortgage rates is expected to exceed 7% soon. Market estimates suggest a 10% rise in oil prices could lift government bond yields by up to 15 basis points. If banks’ funding costs and spreads are also adjusted, the increase in mortgage rates could widen to around 40 basis points, analysts said.
In July 2022, five-year fixed mortgage rates were about 4.2% to 6.1%. As the impact of oil above $100 filtered through with a lag, rates topped 7% by October that year, reaching 5.3% to 7.4%. With the Iran situation raising even a “$150 oil scenario,” some analysts say mortgage rates could climb into the mid-7% range if tensions persist.
Banks’ efforts to manage household lending are also accelerating the rise in borrowing costs. KakaoBank raised mortgage rates by 0.36 percentage points on March 5, lifting its maximum rate to about 6.5%. It was the bank’s second increase this year, following a 0.1-point hike in January.
Industrial Bank of Korea also reduced the limits on its interest-rate discount coupons for mortgages and jeonse loans by 0.1 percentage point and 0.2 percentage point, respectively. Cutting preferential rates has the effect of raising borrowers’ loan rates.
Kim Jina, a researcher at Eugene Investment & Securities, said worries are resurfacing that higher oil prices could fuel inflation, lead to policy-rate hikes and push up market rates, as seen during the Russia-Ukraine war. “Korea is especially sensitive to inflation and rate increases, so the swings will be severe,” she said.
* This article has been translated by AI.
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