Key facts
- Major Japanese banks are raising floating mortgage rates in response to the Bank of Japan's policy rate hike.
- PayPay Bank, SBI Shinsei Bank, Sony Bank, and Aeon Bank have increased rates by more than the BOJ's policy rate hike.
- MUFG Bank and Sumitomo Mitsui Banking Corporation will raise their standard floating rates by 0.25 percentage points to 3.375% in September.
- Online banks face rising funding costs and intense competition for deposits, impacting their profitability.
- The majority of Japanese mortgage borrowers utilize floating-rate loans.
Major Japanese banks are adjusting their mortgage strategies as rising interest rates make corporate loans more attractive and increase funding costs for mortgages. Online banks, which previously offered lower rates to attract borrowers and deposits, are now lifting their benchmark rates, sometimes by more than the Bank of Japan's policy rate hikes.
PayPay Bank, for instance, raised its floating-rate mortgage benchmark from 2.93% to 3.28% in July, a 0.35 percentage point increase that exceeded the BOJ's 0.25 point policy rate hike. Other online banks like SBI Shinsei Bank, Sony Bank, and Aeon Bank also implemented similar increases. In contrast, megabanks such as MUFG Bank and Sumitomo Mitsui Banking Corporation announced they would raise their standard floating rates by 0.25 percentage points to 3.375% starting in September, while Mizuho Bank, Resona Bank, and Sumitomo Mitsui Trust Bank maintained their rates.
This shift is attributed to the changing funding environment following the BOJ's pivot away from ultra-loose monetary policy. Banks are facing increased competition for deposits, forcing them to offer higher rates to retain customers. For online banks, which lack the scale of megabanks, this has squeezed profitability, leading them to re-evaluate their mortgage lending strategies. Some are exploring new mortgage products, such as one that allows borrowers to repay only 50% of the property's value over the loan term, with the remainder due at maturity.
While floating-rate loans, used by about 80% of Japanese mortgage borrowers, will see direct increases in monthly payments, fixed rates are also rising. The higher yields available from investments in government bonds and other market instruments are also making mortgage lending less appealing for some institutions.