Loan counters are seen at a bank in Seoul, Monday. Yonhap

Mortgage loans extended by banks surged by a record 8.2 trillion won ($6.1 billion) last month, bringing the total to 890.6 trillion won. This marks the largest monthly increase since the Bank of Korea (BOK) began tracking such data in 2004. Economists warn that the rising household debt poses a threat to economic growth.

In its report released on Wednesday, the BOK noted that the rapid growth in mortgage loans caused total household loans offered by banks to rise by 9.3 trillion won from the previous month, reaching an outstanding balance of 1,130 trillion won.

This rise represents a 72.2 percent increase from the previous month and is the largest since July 2021, which saw an increase of 9.7 trillion won.

Household loans offered by banks decreased in March for the first time in a year, but rebounded in April and have been rising for five consecutive months since.

The BOK attributed the rise in mortgage loans to factors such as the increasing housing transaction volume in the Seoul metropolitan area. Experts stressed that a decision by financial authorities to delay the second phase of the stressed debt service ratio (DSR) rules spurred greater demand for mortgage loans.

Stressed DSR is a stricter regulation designed to effectively lower the maximum loan limit.

The first phase took effect in February, but the second phase was moved from July 1 to Sept. 1 due to concerns about a sluggish economic recovery.

As a result, July and August were viewed as the last chance to borrow as much as needed at lower interest rates, leading to a sharp increase in mortgage lending.

"Concerns have persisted for several years about the high level of household debt in Korea, which is among the highest globally relative to GDP. Despite this, the authorities postponed the implementation of the second phase of the stressed DSR regulations by two months. During this period, the market reacted explosively, resulting in a surge in mortgage loans," said Min Se-jin, an economics professor at Dongguk University in Seoul.

"The postponement of the second phase will also push back the implementation of the third phase. From the BOK's perspective, adjusting the key interest rate is a dramatic measure, but it becomes a difficult option to pursue in the current situation."

Apartment complexes are seen from Mount Nam in Seoul, Sunday. Yonhap

The Bank for International Settlements (BIS) has also warned that household debt is hindering Korea's economic growth.

In a report published on Sept. 5, the BIS noted that most emerging market economies remain in a phase where further expansion of private credit could help stimulate growth. Private credit refers to debt held by non-financial sectors, including businesses and households.

In contrast, the BIS indicated that emerging Asia seems to be at a turning point, where further financial deepening through credit may begin to hinder growth.

"The historical experiences of Korea and more recently China are consistent with such inverted U-shaped relationships, as their GDP growth rates peaked when credit reached just over 100 percent of GDP," the BIS said.

Korea's private credit-to-GDP ratio reached 222.7 percent last year, significantly exceeding the 100 percent threshold, according to the report. Household debt made up 100.5 percent of the ratio, while corporate debt was 122.3 percent.

The Financial Services Commission and the Financial Supervisory Service (FSS) vowed to manage household debt more proactively to ensure financial market stability.

"In September, with the implementation of the second phase of DSR rules, banks are applying stricter standards to mortgage loans for homes in the Seoul metropolitan area. Additionally, banks are introducing their own measures to manage household loans. As a result, the increase in debt is expected to moderate somewhat this month," an FSS official said.

"If the housing market continues to overheat or household debt continues to increase, we will promptly implement additional measures that are currently under consideration."