The loan guarantee ratio for jeonse (long-term lease) in the metropolitan area will be reduced to 80%. As part of the household loan regulations implemented on June 27, this measure aims to reduce indiscriminate jeonse loans to stabilize rental and housing prices. The government is also considering applying jeonse loans to the Debt Service Ratio (DSR), tightening the reins further. There are also plans to reflect the jeonse loans in the landlord's DSR, but concerns have been raised regarding the potential side effects, such as a contraction in the jeonse market.
According to the financial sector on the 21st, starting today, the Korea Housing & Urban Guarantee Corporation (HUG) will lower the jeonse loan guarantee ratio for the metropolitan area and regulated regions from 90% to 80%. Until now, when tenants who took out jeonse loans were unable to repay their loans to financial institutions, HUG covered up to 90% of the loan amount, but this has been reduced to 80%. When the guarantee ratio decreases, the usual loan limits shrink. For example, for a home with a jeonse price of 500 million won, tenants could previously borrow up to 360 million won, which was 90% of the 80% of the deposit (loan limit of 400 million won), but starting today, the limit will be reduced to 320 million won.
Until early this year, HUG's guarantee ratio was 100%. This means that if problems arose, the guarantee institution would repay the entire loan amount. Consequently, banks did not conduct proper loan assessments, and tenants took out loans without much burden, leading to negative side effects. There were claims that the rapid increase in jeonse loans pushed up rental prices. According to a report by the Korea Research Institute for Human Settlements (KRIHS) released in December last year, when jeonse loan guarantees increased by 3.8%, rental prices rose by 8.21% annually. The researcher noted, "The increase in jeonse loans can raise demand for jeonse, leading to higher rental prices, and landlords may find it easier to purchase dwellings through gap investment (purchase with jeonse), which can increase sales demand as well."
Financial authorities are also considering applying jeonse loans to DSR regulations. Currently, jeonse loans and policy loans like the Step-Up and Pillar Support are not included in DSR calculations. If financial authorities determine that the upward trend in housing prices is not under control, they are considering prioritizing the inclusion of the "interest repayment portion" of jeonse loans in the DSR. There are also arguments to include the principal of jeonse loans in the landlord's DSR, not the tenant's. Recently, it has been reported that the Presidential Committee on Policy Planning has considered a plan among various options to apply the jeonse loan principal to the landlord's DSR and the interest to the tenant's DSR.
However, there are considerable concerns that the housing instability for low-income tenants, such as young people and married couples without homes who mainly use jeonse loans, may increase. There are also predictions that the shift from jeonse to monthly rent could accelerate. Ham Young-jin, head of the real estate research lab at Woori Bank, said, "Lowering the jeonse loan guarantee ratio may make it more difficult for multiple debtors and financial consumers with lower repayment capacity relative to their income to obtain loans, potentially exacerbating housing instability." He added, "If penalties related to jeonse loans are imposed on landlords, this could be passed on to tenants, raising concerns about increases in rental prices and the acceleration of the shift from jeonse to monthly rent."