Growing reliance on borrowing mires South Korean households in debt

Lee's situation is increasingly common in South Korea where total household borrowing hit a record 937.5 trillion won (US$882.7 billion) in September last year, equivalent to more than 70 percent of the country's 2011 GDP.

Laid off from his job in a media company in 2000, Lee opened a restaurant with a bank loan using his home as collateral. Within two years the business had collapsed forcing him to apply for personal bankruptcy.

Lee sold his house to clear the bank loan but then took out a high-interest loan from private lenders to fund the education of his son and daughter.

“Since then, life has been miserable,” said the 59-year-old who confessed to contemplating suicide at one point.

“Everything I earn goes on debt repayment, and my wife works as a housemaid to meet our living expenses,” he told AFP.

Lee's evening job is for an agency which provides emergency drivers, mostly for businessmen who have had too much to drink and need someone to drive them, and their cars, home.

South Korea's household debt mountain has its origins in financial reforms introduced after the 1997 Asian financial crisis that led the country's banks to turn to consumers for asset growth.

A resulting surge in mortgage lending was fuelled by a long streak of low interest rates and a general belief that real estate was a guaranteed investment.

“While U.S. households deleveraged, especially after the subprime mortgage crisis, loan demand for mortgages increased here thanks to rising property prices,” Hyundai Economic Research Institute analyst Lee Jun-hyup said.

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