The guarantee fee for the lease deposit return guarantee products handled by the Korea Housing Finance Corporation (KHFC) and the Housing and Urban Guarantee Corporation (HUG) will increase by up to 30% from next month, depending on the collateral recognition ratio (LTV). The guarantee fees for villas, multi-family homes, and officetels, which are prone to lease accidents, are expected to rise significantly.
According to financial sources on the 12th, KHFC has decided to increase the lease keeper guarantee (lease deposit return guarantee) fee rate for new applications starting from the 1st of next month from the existing annual 0.04% to a maximum of 0.18% annually. The guarantee fee is a type of insurance premium paid when tenants subscribe to lease guarantees to protect against lease fraud.
KHFC plans to apply varying guarantee fees of 0.04% to 0.18% annually based on the LTV. An annual fee of 0.04% will apply for LTVs of 70% or less, 0.11% for LTVs between 70% to 80%, and 0.18% for LTVs between 80% to 90%.
If a 300 million won villa is occupied with a lease deposit of 240 million won (LTV 80%), the existing guarantee fee is 96,000 won, but under the revised guarantee fee rate, it will rise to 264,000 won.
KHFC noted, 'The extension of existing guarantees without an increase in the deposit amount will apply the same guarantee fee rate as before.'
HUG will also reorganize the lease deposit return guarantee fee from the existing range of 0.115% to 0.154% to 0.097% to 0.211% starting from the 31st of next month. The guarantee fees will rise by up to 37% depending on the lease deposit and type of dwellings. HUG maintained a guarantee fee rate around 0.1% since its product launch in 2013.
HUG has also decided to apply varying guarantee fees for APT. and non-APT. For instance, if a 300 million won dwelling is contracted with a lease of 250 million won (lease ratio 83%), the fee for APT. will be 0.154% annually, while for non-APT., it will be 0.197%. In this case, non-APT. had previously paid an annual guarantee fee of 287,500 won, but applying the revised plan, it will increase to 492,500 won.
If a non-APT. dwelling priced between 500 million won to 700 million won is contracted with a lease ratio exceeding 80%, the maximum guarantee fee of 0.211% will apply. For APT. priced at 100 million won or less with a lease ratio of 70% or less, the minimum guarantee fee of 0.097% will be paid. HUG has also reduced the guarantee fee discount for socially disadvantaged groups such as newlywed couples from the previous 50% to 40%.
KHFC and HUG explained that they adjusted the guarantee fees to reflect the high accident rate of lease return guarantees that had not been reflected previously. When tenants subscribe to lease return guarantees, KHFC and HUG compensate the tenants if the landlord does not return the lease deposit.
However, due to the recent effects of lease fraud and reverse lease situations, the rate of compensation payment by guarantee insurance has increased, leading to larger losses for KHFC and HUG. Last year, HUG, which is responsible for 94% of all lease return guarantees, reported a lease guarantee accident amount of 4.4896 trillion won, a 3.6% increase compared to the previous year. The compensation amount by HUG also rose to a record high of 3.9948 trillion won, a 12.4% increase from the previous year.
A HUG official said, 'There has been a limitation in adequately reflecting the recent high guarantee accident rate,' adding, 'We have restructured the system to realize the guarantee fees.'