The government announced a reduction in the guarantee ratio for lease loans in the metropolitan area from the current maximum of 100% to 80%, predicting confusion in the lease market. This increases the likelihood of higher lease loan interest rates or reduced loan limits from banks. There is also a forecast that the turmoil in the villa lease market, used by low-income and working-class individuals, may intensify.
On the 8th, the Financial Services Commission noted that as part of measures to manage household debt, it plans to reduce the lease loan guarantee ratio to below 90% within the first quarter of this year (January to March). Tenants receive lease guarantees from one of three organizations: the Housing Finance Corporation (HF), the Korea Housing & Urban Guarantee Corporation (HUG), and Seoul Guarantee Insurance (SGI). Until now, banks had provided loan amounts secured with lease guarantees of 90-100%, allowing them to lend without concern for potential losses.
The lease loan guarantee from HF, HUG, and SGI is a system that reinforces credit by providing guarantees for lease loans without collateral to alleviate the housing cost burden on low-income individuals. This is distinct from the lease deposit return guarantee, which prepares for situations where tenants cannot receive deposits due to lease fraud.
The government explained that household debt surged because banks issued lease loans without assessing repayment capabilities, relying on the 100% guarantee. The current outstanding balance of lease loans recently surpassed 200 trillion won.
The issue is that reducing the guarantee ratio in the metropolitan area to 80% may raise the threshold for working-class individuals to access leases. First and foremost, concerns about rising lease loan interest rates have emerged. If the guarantee ratio for lease loans in the metropolitan area is reduced to 80%, banks are likely to tighten income assessments of financial consumers when providing loans compared to when offering 100% guaranteed loans. From the banks' perspective, the amount without guarantees poses a risk of loss, potentially leading to decreased lease loan limits or higher interest rates, particularly for low-income individuals.
Under these circumstances, the villa market is likely to be the first to collapse. In the case of villa leases, where the risk of lease fraud is higher than that of apartments, the possibility of loan denials cannot be ruled out. Although high-end leases may face no guarantee issues, there are concerns that this will push out low-income and working-class individuals.
The reason for tightening regulations on lease loans is due to investors employing circumventions. The Financial Services Commission believes that while individuals can cover lease deposits with their own funds, the ease of obtaining a loan and its relatively low interest rates could incite demand for 'gap investments,' where individuals purchase homes while leaving a lease in place. The expansion of gap investments is cited as a factor stimulating rises in housing prices.
However, experts point out that reducing the guarantee ratio is not a fundamental solution. Go Jun-seok, a professor at Yonsei University's Sangnam Institute of Management, stated, 'The average lease price in Seoul has risen to 600 million won, and if we reduce the guarantee ratio and effectively lower the limit, it will create difficulties for actual demanders. It would be counterproductive to reduce the guarantee ratio for real users just to catch some circumventions.'
Whenever concerns about the lease loan guarantee limits arise, proposals for differentiating guarantee limits based on annual income have also been discussed. This is aimed at protecting low-income working-class individuals.
In fact, the Korea Research Institute for Human Settlements pointed out in a research report last December that 'lease loan guarantees should be prioritized for affordable rental housing, and fees and interest rates should be lowered for low-income and middle-class households, taking into account their economic levels.'