From mid-June, the limit on jeonse loan amounts from banks is expected to decrease, and interest rates are projected to rise. This is because major guarantee institutions, such as SGI Seoul Guarantee and the Korea Housing Finance Corporation (HUG), are reducing the guarantee ratios for jeonse loans and tightening the income assessments for tenants (borrowers).
According to the financial sector on the 2nd, Seoul Guarantee will reduce the guarantee ratio for jeonse loans from the current 100% to 90% starting on the 11th, and HUG will do so from the 13th. A guarantee ratio of 100% means that in the event of a loan incident, the guarantee institution pays the entire loan amount to the bank.
If the guarantee ratio is reduced by 10%, banks will not be able to recover the entire loan amount in the event of an incident, thus they will need to strengthen their loan assessments accordingly. This could lead to an increase in loan interest rates. It is reported that banks are expected to conduct loan assessments similar to those of credit loans for the 10% that is not guaranteed.
Financial authorities are also reviewing measures to tighten jeonse loan guarantees in the metropolitan area. They believe that high guarantee ratios lead to an increase in jeonse loans, which in turn contributes to rising dwelling purchase prices. Financial authorities are said to be considering reducing the guarantee ratio in the metropolitan area to 80% or 70%.
The two institutions will also strengthen the assessment of tenants' repayment ability for jeonse loans. Seoul Guarantee has decided to apply a repayment ratio (Debt Service Ratio, DSR) of 40% or less for tenants who are homeowners and whose loan amount exceeds 60% of the jeonse deposit, starting on the 11th. This means that if the principal and interest to be repaid account for more than 40% of annual income, guarantees will become difficult. Until now, the assessment focused on the interest costs relative to the borrower's annual income.
For homeowners with many loans or low income, the limit on jeonse loans will be reduced. Tenants without homes or those whose loan amounts are 60% or less compared to the jeonse deposit will still apply the existing standards.
A representative from Seoul Guarantee noted, "Tenants should be aware that the evaluation of the borrower's repayment ability includes a comprehensive assessment of credit scores and other factors."
HUG has also decided to implement an assessment of tenants' repayment ability when calculating guarantee limits starting this month. An item encompassing 'repayment ability,' which includes income and liabilities, has been added to the guarantee limit calculation criteria. Previously, guarantees were provided regardless of a tenant's repayment ability, up to 80% of the jeonse deposit: 400 million won in the metropolitan area and 320 million won in other regions. Borrowers who are already paying high loan interest will see their guarantee limits reduced, which could correspondingly decrease the jeonse loan limit and raise interest rates.
In the case of jeonse loans, it is necessary to have a guarantee from a guaranteeing institution for the loan to be possible. Thus, banks plan to conduct loan assessments according to the strengthened guarantee assessment criteria of the guaranteeing institutions.
A bank representative indicated, "If the income assessment criteria of the guaranteeing institutions are further strengthened, the transition from jeonse to monthly rent is expected to accelerate."