Falls in mortgage rates will reduce interest costs for households that have borrowed heavily to purchase homes on expectations of further rises in home prices. Currently, more than 98 percent of aggregate housing loans are tied to floating interest rates, which move in line with the Bank of Korea call rate target.

Shinhan Bank, the second-largest lender, said its housing loan rates fell .02 of a percentage point last week to 5.44 _ 6.74 percent. Woori Bank, the third-largest, also saw its housing loan rates fall .03 of a percentage point last week.

The central bank signaled last month that it has come closer to a neutral monetary stance regarding the call rate, which has been raised five times since October last year, and may change the direction of its monetary policy.

According to Jeon Hyo-chan, a researcher at the Samsung Economic Research Institute, expectations are getting stronger in the market that the BOK may not move to raise its key rate further.

Apartment prices have shown signs of stabilizing in recent months as a result of the government strong anti-speculation measures.

Edwina Baniqued