Korea`s fixed mortgage rates rise up to 10 pct

SEOUL, Oct. 5 (Yonhap) -- South Korean banks' mortgage rates have risen up to 10
percent on Friday as cash shortages deepened in the banking sector, industry
sources said Sunday.

Shinhan Bank, the third-biggest lender, set its fixed interest rates on
three-year house-backed loans from 8.4 percent to 10 percent, with its highest
rate rising 0.14 percentage points from early this week, the sources said.
The bank's highest interest rate soared 2.11 percentage points over the past five
months from 7.89 percent on May 6.
Top lender Kookmin Bank raised its fixed interest rates on three-year mortgage
loans by 0.2 percentage points this week to a range between 8.31 percent and 9.81
percent, while Woori Bank's fixed mortgage loan interest rates rose 0.21
percentage points to 8.64 percent to 9.74 percent, the same sources said.
The fixed mortgage rates are changed daily on the basis of average return on the
benchmark three-year bank debts that were traded for the previous three trading
sessions.
"A soar in the return on bank bonds stemming from liquidity squeeze sent fixed
mortgage rates going up in the local banking sector," one source said, adding
that the bank actions were taken on Friday.
The yield on AAA-rated three-year bank bonds stood at 7.6 percent as of Oct. 1,
up 0.78 percentage points from 6.82 percent on Sept. 17.
Floating interest rate on home-backed loans also are on the rise as the yield on
certificates of deposit (CDs) rose at a faster clip, the sources said. The
floating mortgage rates move in tandem with the CDs.
The 91-day CDs yield rose to 5.88 percent on Thursday, its highest since Jan. 10.
Earlier this week, Korea Exchange Bank raised its floating mortgage rates by 0.23
percentage points to the range of 6.99 percent to 8.27 percent
Other local banks including the Industrial Bank of Korea raised their floating
interest rates on home-backed loans between 0.05 percentage points and 0.1
percentage points, the sources said.
Rising interest rates on house-backed loans need to cut interest rates in a bid
to relieve household debts, experts said.
"Liquidity squeeze is expected to continue until the end of the year. If mortgage
rates prolong, it will place a heavy burden on most households that borrowed
money from banks,"Jeon Hyo-chan, a research fellow at Samsung Economic Research
Institute, said.
As of 2007, South Korean households had financial debts amounting to 1.5 times
their disposable income, higher than 1.4 times that of the United States and 1.2
times that of Japan, industry data showed.