BOK Keeps Rates Steady for Third Time — Housing Surge, Policy Moves at Play?

Bank of Korea Holds Key Rate Again in October After July and August Pauses
Soaring Seoul Home Prices Raise Questions Over Coordination with Oct. 15 Housing Measures
Loan Curbs Prove Effective Short-Term but Unlikely to Suppress Demand for Long

The Bank of Korea’s Monetary Policy Board has decided to keep the key interest rate unchanged for the third consecutive meeting. With housing prices in Seoul continuing to surge, the central bank is seen as delaying a rate cut to align with the government’s tightening measures on mortgage lending.

BOK Keeps Base Rate at 2.5% in October

On October 23, the Bank of Korea’s Monetary Policy Board held its policy meeting and decided to keep the benchmark interest rate steady at 2.5%. The central bank had previously raised the rate from 0.5% to 3.5% between August 2021 and January 2023, maintaining that level for 17 months. It then cut rates in October and November last year, alternated between freezes (January and April) and cuts (February and May) this year, and has now held the rate at 2.5% for three consecutive meetings in July, August, and October.

In its policy statement, the BOK said, “While uncertainty surrounding the growth outlook remains high, improvements are continuing, led by consumption and exports. Given the need to further assess the impact of housing measures on the Seoul metropolitan real estate market and household debt, as well as exchange rate volatility and overall financial stability, maintaining the current rate level is deemed appropriate.”

Analysts view the move as a deliberate effort to avoid fueling the overheated housing market. The consumer housing price outlook index rose to 112 in September, up one point from the previous month. Although the index had dropped sharply following the government’s June 27 housing measures — which lowered the mortgage limit to 600 million won — it rebounded in August (+2 points to 111) and again in September (+1 point). The renewed optimism over home prices has fed into real estate overheating. According to data from the Korea Real Estate Board on October 16, apartment prices in Seoul rose 0.54% in the second week of October compared with two weeks earlier, before the Chuseok holiday.

Government Tightens Mortgage Rules Under October 15 Measures

The government’s recent housing policy is widely seen as another reason the Bank of Korea refrained from cutting rates. Lowering interest rates while the government is reinforcing lending restrictions could have sent mixed signals to the market.

On October 15, the Financial Services Commission, along with other ministries, announced a new set of housing stabilization measures that took effect on the 16th. Under the plan, the maximum mortgage limit for homes priced above 1.5 billion won in the Seoul metropolitan area has been reduced from the current 600 million won. Specifically, loans are capped at 400 million won for homes priced between 1.5 and 2.5 billion won, and 200 million won for homes over 2.5 billion won.

The government also strengthened its controls on total lending. The minimum debt service ratio (DSR) has been raised from 1.5% to 3%, effectively doubling the stress rate added to loan interest during the screening process. This conservative benchmark reduces the maximum borrowing capacity of new borrowers. Starting October 29, the DSR calculation will also include lease (jeonse) loans for single-home owners. Previously exempt, these loans will now have their interest repayments counted toward the borrower’s total debt obligation.

In addition, real estate regulation zones and land transaction permit areas are being expanded. The government plans to broaden the scope of “adjustment zones” and “speculative districts” across Seoul and parts of Gyeonggi Province. Restrictions will extend beyond the existing four high-demand areas—Seocho, Gangnam, Songpa, and Yongsan—to include riverfront districts such as Mapo, Seongdong, and Gwangjin, as well as suburban areas like Bundang and Gwacheon. Homes within these zones will face tighter loan-to-value (LTV) and debt-to-income (DTI) ratios, both capped at 40%. Additional restrictions will also apply, including higher acquisition taxes and resale limits for owners purchasing second homes.

Cooling Effect Likely Temporary

The government’s October 15 housing measures have shown an immediate impact. Within just a week of the announcement, apartment transactions in Seoul dropped to one-tenth of previous levels. According to data from the Ministry of Land, Infrastructure and Transport’s real transaction system as of October 22, only 235 apartment sales were reported between October 16 and 21—the six days following the enforcement of new regulations. This represents just 11.2% of the 2,102 transactions recorded in the six days prior (October 10–15, including the announcement date). Although figures may still change since real estate transactions can be reported up to 30 days after signing, the data clearly indicate a sharp decline in activity following the policy rollout.

However, experts doubt that the cooling effect will last long. They argue that demand-suppression policies tend to lose effectiveness over time. Lee Eun-hyung, a research fellow at the Korea Institute of Construction and Transportation, commented, “There will inevitably be debate over how long such artificial suppression can be sustained, and how to respond if prices of newly traded homes change even amid plummeting transaction volumes, as seen in past cases.”

Ham Young-jin, head of real estate research at Woori Bank, added, “With over 3 trillion dollars in market liquidity (M2), expectations of future rate cuts, and rising rent and lease prices, it remains uncertain whether housing demand—especially among first-time buyers—can be fully contained.”

Some experts also warn that without meaningful supply-side measures, the market could quickly overheat again. If new housing completions remain limited, panic buying may reemerge. According to joint data from the Korea Real Estate Board and Real Estate R114, the number of new apartment units expected to be completed in Seoul in 2026 stands at 28,885—about 20% lower than the ten-year average of 35,797 units between 2014 and 2023.