Bank of Korea (BOK): "For households that bought homes by 'borrowing to the hilt,' a 1%p rise in interest rates would increase delinquency rates by 0.81%p."

[Financial News] It was found that for households that purchased homes with heavy debt, a 1%p increase in interest rates raises the probability of delinquency by as much as 0.81%p. In particular, these households are more vulnerable to the shock of interest rate hikes, making it highly likely that credit risk will spread among household members. It was estimated that one in ten households with household debt reduces consumption due to the increased burden of debt repayment.
On the 7th, the Bank of Korea (BOK) released a report (BOK Issue Note) titled 'Assessment of Household Debt Risk Using Household Database (DB)' containing these details.
According to this report, when interest rates rose, both low-income households and households with high levels of housing debt were vulnerable to the shock of interest rate hikes. In fact, when the head of the household was delinquent, the delinquency rate of other household members (conditional delinquency rate) was also high.
In particular, "high-borrowing households" that purchased homes by borrowing as much as they could, such as through "borrowing to the limit," were more vulnerable to interest rate shocks and faced a greater risk of credit risk spreading within the household. These are the top 10% of households that experienced the largest increase in the burden of principal and interest repayment relative to income when purchasing a home.
It was found that for these households, a 1%p increase in interest rates leads to a 0.81%p rise in the probability of delinquency. This represents a significant increase compared to the actual delinquency rate of 2.01% for home-owning households at the end of last year.
Jang Hoon, a manager at the Monetary and Financial Research Division of the Bank of Korea Economic Research Institute, explained, "In high-borrowing homeownership households, if one person defaults, the probability that another household member will default within one year is 8.8%, which is 1.9 times higher than that of existing homeowners (4.6%)." He added, "This suggests that for high-borrowing households, the credit risk from rising interest rates is highly likely to spread beyond the individual borrower to the entire household."
When interest rates rose by 0.25 percentage points, the household delinquency rate increased by 0.27 percentage points from the previous level (3.35%). The interest rate sensitivity to this shock was relatively greater among low-income households and households of self-employed individuals and corporate representatives.
Prior to the interest rate hike, the delinquency rates for the first and second income quintiles were 5.45% and 4.38%, respectively, which were higher than the overall average (3.35%). Twelve months after the interest rate hike, their delinquency rates increased by 0.48%p and 0.40%p, respectively. Households of self-employed individuals and corporate representatives also saw a significant rise, increasing by 0.32%p from 4.47% prior to the hike.
It was estimated that as interest rates rise, 11.1% of households with debt face constraints on consumption due to the burden of debt repayment. Estimating the consumption function for 2025, the debt service ratio (DSR) threshold at which consumption shifts to a decrease was found to be 46%.
Manager Jang said, "Typically, as the DSR relative to income increases, consumption gradually slows down and then decreases once the DSR exceeds a certain level," adding, "Among households with debt, 11.1% had a DSR exceeding 46%."
The proportion of households with a 'DSR exceeding 46%' has been increasing since 2021. In particular, the increase in the low-income group (income quintile 1) has been significant recently, rising from 11.4% in 2021 to 14.5% in 2025.
The Bank of Korea (BOK) plans to strengthen the assessment and management of credit risk using household-unit databases to analyze the reality of household debt more accurately and comprehensively amidst a period of rising interest rates. Lee Yun-ha, a manager at the Bank of Korea’s Household Debt Micro-Statistics Team, stated, "By reflecting the financial situation of all household members, we can more accurately capture the soundness of household credit."
To prepare this report, the Bank of Korea (BOK) built a large-scale monthly panel dataset capable of tracking the debt, assets, income, and expenditure information of 2.06 million households (9.2% of the population).


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