Mortgage rates at commercial banks have risen sharply, pushing the top end above 6 percent. The possibility of entering the 7 percent range this year is also being discussed. With financial authorities expected to further tighten household loan management, the barrier to household borrowing is rising and banks’ fund management is likely to be reshaped around corporate lending.

As of Jan. 7, mixed-rate (fixed) mortgage loans at major commercial banks - KB Kookmin, Shinhan, Hana and Woori - were tallied at 4.1 percent to 6.21 percent a year, according to the financial sector. Some banks already have top rates above 6 percent. With the lower end of loan rates also failing to fall, the perceived burden on end-users is increasing.

Some in the financial sector also expect that if the current uptrend continues, the top end of mortgage rates could exceed 7 percent within the year. This view is based on a judgement that the high-rate phase could last longer than initially expected as expectations for a policy rate cut weaken. In particular, worries are spreading that the longer the timing of rate cuts is pushed back, the more rigid the downside for lending rates will become.

This rate burden is expected to directly affect not only new borrowers but also existing homeowners. For so-called "all-in" borrowers who took out mortgages at floating rates, interest costs could swell quickly and household financial burdens could expand sharply. As rate increases feed directly into higher principal and interest payments, some point to rising delinquency risks among vulnerable borrowers.

The institutional environment around banks is also weighing on mortgage expansion. Starting this year, mortgage risk weights were raised to 20 percent from 15 percent, increasing banks' burden of managing capital adequacy. As more mortgages are originated, risk assets rise relative to equity, making mortgage expansion a management burden for banks.

Financial authorities are also taking a tougher stance on household debt management. The Financial Services Commission plans to hold a household debt inspection meeting this month and ask banks for more detailed loan management measures. There is also talk that plans could be discussed to closely check monthly and quarterly loan growth trends in addition to annual total-volume management. This is interpreted as reflecting authorities' intent to block household loans that are not for end-user needs in advance.

External factors are also behind the rise in mortgage rates. As expectations spread that the Federal Reserve's timing for a policy rate cut will be later than expected, U.S. Treasury yields are rising and this is being immediately reflected in domestic market rates. If U.S. rate cuts are delayed, the likelihood that domestic policy rate cuts will also be postponed increases, ultimately putting upward pressure on lending rates.

Banks increasing bank bond issuance to raise funding is also cited as a factor behind higher rates. An increase in bank bond supply leads to higher bond yields, which in turn lifts mortgage rates. The analysis is that banks facing higher funding costs have little choice but to pass them on through lending rates.

In this environment, banks are turning to corporate lending instead of household loans. The strategy is to offset growth capacity constrained by household lending regulations through corporate finance. Major commercial banks are said to have set mortgage targets conservatively during their sales strategy planning process early this year, in line with authorities' stance.

Banks are expected to avoid additional penalties while meeting last year's loan growth targets. KB Kookmin Bank slightly exceeded its target, but the overall view in the financial sector is that it was within a manageable range.

Even so, with the tightening stance on household debt management already entrenched, banks are expected to remain cautious about expanding household lending. If the high-rate stance is prolonged in this trend, borrowers' burdens are expected to continue to increase.

A financial sector official said lending rates are more likely to stay at higher-than-expected levels for an extended period rather than jump sharply further from a peak. The official added that with uncertainty over the exchange rate and international conditions persisting, domestic rate cuts will also inevitably take time.

The official said the real estate market has seen transactions shrink and it is hard to say prices have stabilised, so given domestic and external conditions, borrowers may face difficulties in an environment where it will not be easy to lower rates for the time being.