One in 10 indebted South Korean households faces consumption constraints

More than one in 10 South Korean households with debt are limiting consumption because of repayment burdens, according to a new Bank of Korea analysis. The report expands household-debt analysis from individuals to families using a newly built household database.

The central bank estimated that 11.1% of debt-holding households faced consumption constraints in 2025. These households had a debt-service ratio above 46%, a threshold at which consumption shifts from gradually slowing to statistically significant decline. The share has increased since 2021, with the largest rise among the lowest-income households, from 11.4% in 2021 to 14.5% in 2025.

The bank also identified a particularly vulnerable group: the top 10% of households ranked by the increase in principal and interest payments relative to income when buying homes. For these heavily indebted home-buying households, a 1 percentage-point increase in interest rates was associated with a projected 0.81 percentage-point rise in the household delinquency rate. That compares with an actual delinquency rate of 2.01% among homeowners at the end of 2025.

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As the ratio of principal and interest payments to income rises, consumption gradually slows and then decreases once it exceeds a certain level. The threshold for this transition was identified as 46%.

Risk can spread within these households. If one household member became delinquent, the probability that another member would become delinquent within 12 months was 8.8%, compared with 4.6% among existing homeowners. The Bank of Korea said this indicated that higher rates could spread credit risk beyond an individual borrower to the wider household.

Across all borrowing households, a 0.25 percentage-point rate increase was projected to raise the delinquency rate by 0.27 percentage points from the 3.35% recorded at the end of 2025. Lower-income households and households led by self-employed people or corporate executives were more sensitive. The bank built a monthly panel tracking debt, assets, income and spending for 2.06 million households, or 9.2% of the KCB household population, using credit-information data and addresses.

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This suggests that, for highly indebted households, credit risk is likely to spread from individual borrowers to household members as interest rates rise.