The government has moved up the adjustment of the guarantee ratio for jeonse loans from the Korea Housing Finance Corporation (HF) originally scheduled for July, which is expected to make it more difficult to obtain jeonse loans from banks in the second half of the year. In July, the implementation of the three-step Debt Service Ratio (DSR) stress is also scheduled, which will further tighten household loan management in the banking sector.
According to the financial sector on the 27th, from May, SGI Seoul Guarantee and the Korea Housing Guarantee Corporation (HUG) will adjust the guarantee ratio for jeonse loans from the current 100% to 90%. This is to unify the guarantee ratios with the current rate of 90% from the three major guarantee institutions, including the Korea Housing Finance Corporation (HF).
Banks have been providing jeonse loans to financial consumers without collateral under the guarantee of guarantee insurance institutions like HUG. The guarantee ratio has been 100%, meaning that if tenants fail to repay the loan, HUG and others will cover the full amount. If the guarantee ratio is lowered, banks could incur more losses, making the loan screening process stricter.
The reason for lowering the guarantee ratio is that the previously excessive guarantee ratio had been criticized for encouraging indiscriminate jeonse loans. Banks were not conducting proper loan screenings, and tenants were able to borrow without concern even when jeonse prices rose. As a result, the high guarantee ratio for jeonse loans has been analyzed as a trigger for household debt.
In July, the three-step stress DSR will also be implemented. The stress DSR is a system that adds a stress additional charge to the loan interest rate for financial consumers, reducing loan limits. Once the three-step is implemented, the total household loan of all financial sectors will be subject to a stress rate, which will increase by 1.5 percentage points. When the three-step is applied, the loan limit for a financial consumer with an annual income of 50 million won will decrease by up to 50 million won compared to the previous limit.
The problem is that banks are beginning to impose their own regulations on jeonse loans despite the fact that full-fledged regulations have not yet been implemented. Due to the rapid increase in household loans and rising housing prices in the metropolitan area, banks are making the terms for jeonse loans increasingly stringent. Hana Bank will stop conditional jeonse loans for existing housing disposals and first-priority debt cancellations or reductions in Seoul starting on the 27th. NongHyup Bank also banned conditional jeonse loans in the Seoul area from the 21st. All of this is aimed at preventing gap investments.
With the tightening of not only mortgage loans but also jeonse loans, confusion among actual users looking to secure jeonse is growing. Additionally, there are concerns that the relaxation and re-designation of land transaction approval zones could spill over into the jeonse market. Many believe that if the trading volume decreases due to regulations on actual transactions and the heightened threshold for mortgages, the demand that remains in the rental market could inevitably lead to an increase in rental prices.
A source from a commercial bank commented, "If the guarantee ratio increases, the risk will rise, so we will have no choice but to conduct a thorough review of financial consumers' credit and other factors, making loan approvals more stringent." They noted, "However, the current tightening of jeonse loans by banks is mostly aimed at preventing gap investments, so it is unlikely to significantly impact those who genuinely need homes and do not own property."