The financial authorities are reviewing regulations on loans to rental business operators totaling 1.39 trillion won. When extending the maturity of these loans, authorities are considering strictly applying the rent-to-interest ratio (RTI).
According to the financial sector on the 18th, the Financial Services Commission will on the 19th review repayment methods and maturity extension procedures for loans to rental business operators with executives in charge of corporate lending from all financial sectors.
For multi-homeowners, mortgages taken out under an individual's name are amortized over 30 to 40 years. Because the principal is fully repaid at maturity, there is little need to extend the loan. In contrast, loans to rental business operators are issued with maturities of three to five years and are typically extended annually. Loans to residential rental business operators in the banking sector are estimated at 1.39 trillion won.
The financial authorities are said to be considering applying the RTI strictly during maturity extension reviews. RTI is calculated by dividing a rental business operator's annual rental income by annual interest costs. If annual rental income is 30 million won and the principal and interest due is 20 million won, the RTI is 1.5 times. The RTI requirement is 1.5 times in regulated areas and 1.25 times in non-regulated areas.
Banks review RTI when issuing loans to rental business operators, but they have been criticized for conducting only a formal check when extending loans. If a rental business operator cannot extend a loan, the operator has no choice but to sell dwellings to repay it. However, there are concerns that growing repayment pressure could lead to higher rents.
This review of regulations began after President Lee Jae-myung noted that extending loans for rental business operators is not fair. On the 13th, Lee wrote on social media (SNS), "Is it fair to grant extension benefits even when loan maturities come due for multi-homeowners who have held on without resolving their multiple dwellings?"