housemoving gonk: Household Loans, how do they matter in our economy?

Thursday, November 29, 2012

Household Loans, how do they matter in our economy? | Frank's ...

Hi all, this is Tony back.

If you have read my posts, you would notice that lots of them are closely related to ?household finance?. Today?s topic deals with a coherent issue, as I am telling you ?household loans?. As you have already read in my previous posts, the number of house poor is growing due to excessive amount of mortgage loans. To deal with this matter, a low interest rate is being introduced.

According to the Bank of Korea statistics, 47.30 percent of newly issued household loans are based on a fixed interest rate. The rate was for 11% in September 2010, 26.20% for September 2011, and lastly 47.30% this year. Along with this, the aggregate total ratio of fixed rate loans increased to 16.70%. This is the highest figure ever since they started being recorded.

What would be the reason for this phenomenon? The biggest reason is that the financial authorities placed emphasis on loans with fixed interest rates. Accordingly, monetary institutions are encouraged to promote fixed interest rates. However, this is not the only reason why households are looking for fixed interest rates for their financial products. One person in baking industry said in an interview, ?When the government announced this policy, it seemed that the fixed interest rate did not really matter much. However, with the downward pressure on policy interest rate, the fixed interest rate begins attracting more attention.

In June last year, Financial Services Commission (FSC) had announced ?Soft-Landing Measures of Household Debts?. However, till this February, the importance on household debt for fixed rate was set at less than 10% despite FSC?s Soft-Landing Measures of Household Debts. But as the Bank of Korea rolled back policy interest rate twice consecutively, the gravity on policy interest rate grew in a wide variation. This phenomenon marking down the policy interest rate seems to be more invigorated. One of the authorities in banking industry said, ?There is a possibility that the Bank of Korea will cut additional policy interest rate.If economy gets better by the next year, they will bring the interest rateback into the process of normalization (increasing the rate of interest).