An analysis finds that since 2013, household debt, which has surged excessively centered on mortgage lending, has slowed private consumption by 0.4 percentage points each year. Given that mortgages are long-term loans, the consumption constraint from household debt is expected to persist for the time being.

According to the Bank of Korea’s report released on the 30th, ‘The impact of real estate-driven household debt accumulation on consumption’, over the past 10 years (2014~2024) Korea’s ratio of household debt to gross domestic product (GDP) increased by 13.8 percentage points, mainly due to real estate lending. This was the third-highest increase among the 77 countries analyzed, after China (+26.2 percentage points) and Hong Kong (+22.5 percentage points).

Over the same period, the share of private consumption in GDP fell by 1.3 percentage points. The Bank of Korea explained, “This is a feature not clearly observed in other countries, suggesting that the scale of household debt in Korea is so large that household borrowing may not be translating into consumption.”

According to the Bank of Korea’s analysis, household credit (debt) that has accumulated excessively since 2013 is estimated to have slowed private consumption by 0.40~0.44 percentage points each year. This means that if the ratio of household debt to GDP had been kept at its 2012 level, the level of private consumption in 2024 could have been 4.9∼5.4 percentage points higher than it is now. The Bank of Korea stated, “Along with demographic changes (0.8 percentage points), the accumulation of household debt (about 0.4 percentage points) is assessed to explain most of the structural slowdown (1.6 percentage points) in Korea’s private consumption growth rate.”

The Bank of Korea pointed to the surge in principal-and-interest burdens as the background for the structural slowdown in consumption. Among 17 countries, from Q1 2015 to Q1 2025, the increase in Korea’s debt-service burden (DSR·total debt service ratio) of (+1.6 percentage points) ranked second after Norway (+5.9 percentage points). Given the large stock of accumulated principal and the long maturities of mortgages, the Bank of Korea explained that households’ effective repayment burdens are likely to persist, damping consumption.

A relatively weak ‘wealth effect’ compared with other countries was also cited as a factor dampening consumption. In Korea, it is estimated that when real estate prices rise by 1%, private consumption increases by 0.02%, which is lower than the estimated consumption elasticity in major advanced economies (0.03∼0.23%). The Bank of Korea explained that factors such as the underdevelopment of housing monetization products (such as reverse mortgages) that allow households to use home price gains for consumption, and social norms that one should move to a better home in the future or provide housing for one’s children, have reduced the wealth effect.

The Bank of Korea also pointed out that mortgages, which account for about 66% of the increase in household debt, are used for unproductive asset transactions rather than consumption in the real sector, which has been a factor in the consumption slowdown.

The Bank of Korea stated, “Rather than triggering a sudden crisis like a myocardial infarction, the household debt problem is gradually constricting consumption like atherosclerosis,” adding, “However, since the ratio of household debt to GDP has recently turned to a decline thanks to coordination among policy authorities, if consistent responses continue over a long horizon, the structural consumption constraints from accumulated household debt will also gradually diminish.”