In his 40s, Mr. Kim signed a jeonse contract for an apartment in Seoul at the end of last month and recently inquired about a jeonse loan from his primary bank, but he was rejected, being told that "the loan is not possible." This was due to the fact that the landlord had received a mortgage on the jeonse property. Until the contract was finalized, the real estate agent had said that a loan would be no problem as banks were loosening regulations. In a hurry, Mr. Kim re-wrote the contract with a special condition stating that "the landlord will pay off the mortgage with all of the jeonse funds received on the balance payment date" after consulting with the landlord, but the loan was rejected again.
As the financial authorities tighten management of household loans, the threshold for loans has risen again, causing damage to actual users. After the government expanded the reassignment of land transaction permission zones, it suddenly became difficult to receive mortgage loans or jeonse loans, which has put pressure on financial consumers like Mr. Kim who were planning to move.
According to the financial sector on the 30th, Hana Bank has stopped handling new conditional jeonse loans in the Seoul area since the 27th. This includes the cancellation and reduction of senior claims and conditional jeonse loans for multiple homeowners. Even Hana Bank, which was the only one among the five major commercial banks to allow conditional jeonse loans in the Seoul area, has raised its threshold. Currently, the only bank where conditional jeonse loans with cancellation and reduction of senior claims are available is Shinhan Bank. Shinhan Bank has blocked all conditional jeonse loans since August of last year, but resumed conditional jeonse loans with cancellation and reduction of senior claims in January of this year.
The reason banks uniformly tightened regulations on conditional jeonse loans is to prevent "gap investment," which involves buying homes with jeonse. The financial authorities have stated they will focus on whether loans are being handled appropriately when banks handle mortgage loans as subordinate to dwellings with senior jeonse loans established. Until now, for instance, when purchasing an apartment worth 1.6 billion won with a jeonse of 700 million won, one could receive a mortgage loan of around 400 million won from the bank. However, this type of transaction often does not aim for actual residence, which is why lending for such transactions has effectively been suspended.
The issue lies with cases like Mr. Kim's. Even if the purpose is actual residence, it has become difficult for tenants to receive jeonse loans on dwellings with senior mortgages established. A bank official noted, "There is considerable speculative demand to buy additional dwellings after paying off the mortgage with jeonse money from a house rented out, and this is aimed at being stopped," adding, "There are side effects where tenants intending to actually reside may find it more difficult to secure homes."
The financial authorities have repeatedly emphasized the responsibility of banks. Kim Byeong-hwan, Chairperson of the Financial Services Commission, noted at a regular press briefing on the 26th that the "loan screening" of banks is crucial, stating, "Speculative demand must be filtered out, and priority should be given to those who genuinely need loans." He stressed that banks should filter out speculative demand while carefully screening actual users to ensure they can obtain loans. Chairperson Kim added, "We will proactively consult with banks to ensure that actual users do not suffer losses while monitoring household loans."
Despite concerns about damage to actual users, banks collectively express that it will be difficult to lower the loan threshold for the time being. A bank official stated, "The financial authorities are meticulously monitoring the trends in mortgage and jeonse loan increases by bank, especially in the capital region, including Seoul," adding, "It is an unavoidable situation that we can only be passive in handling new household loans aimed at actual residence in the capital region."