S. Korean banks’ mortgage lending rates touch three-year high

South Korea’s mortgage-backed lending rates have hit the highest level in more than three years as local banks marked up loans after the central bank raised its benchmark interest rate for the first time in a year in November.

According to Korea Federation of Banks on Monday, Cost of Funds Index (COFIX), a benchmark lending rate for mortgage loans, was 1.95 percent for outstanding loans in November, up 0.02 percentage point from a month ago. The rate for new loans stood at 1.96 percent, up 0.03 percentage point during the same period.

The COFIX rate for outstanding loans was the highest level since 1.98 percent in September 2015, and for new loans since 2.03 percent in February 2015.

The rise in COFIX - the weighted average of interest rates of eight domestic banks - has been widely expected as commercial lenders raised interest rates on savings and installment savings products after the Bank of Korea hiked the policy rate last month. A rise in COFIX would lead to a rise in variable-rate mortgage loans.

The Korea Federation of Banks said that market rate changes are reflected slowly to COFIX on outstanding loans but faster on new loans.

With the rise in mortgage-backed lending rates, the Korean housing market is expected to cool down further. Apartment prices in Seoul have dropped over the past five weeks following the introduction of a slew of the government’s measures to clamp down speculative property buying blamed for the runaway housing market this year. The government’s latest measures announced in September were the strongest regulations including tightening mortgage loans to multiple home-owners and enhancing holding tax to cool housing prices.

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