With President Lee Jae-myung pointing to jeonse deposit loans as one of the reasons for rising home prices, the financial authorities are expected to soon unveil related measures. Applying the total debt service ratio (DSR) to jeonse loans, shrinking guarantee ratios, and banning jeonse loans for non-resident single-home owners are expected to gain traction.
According to the financial sector on the 9th, the Financial Services Commission is reviewing additional real estate loan regulations, including curbs on jeonse loans. The government plans to announce additional real estate regulations depending on future real estate price trends. Some say that strong loan regulations not anticipated by the market will be included.
A senior official at the financial authorities said, "We have a 'lineup' prepared for real estate finance regulations," and added, "We are reviewing what to roll out and when."
The additional real estate regulations are expected to include measures that tighten jeonse loans. At a press conference marking the first anniversary of the inauguration held at the Blue House state guesthouse the day before, the president said, "Jeonse is a kind of private finance that exists only in Korea," and noted, "Extending many jeonse loans was a main cause of rising home prices, and that led to jeonse fraud." Because the president directly raised the need to reduce jeonse lending, the financial sector sees an announcement of related regulations as only a matter of time.
In the financial sector, applying the DSR to jeonse loans is being discussed. DSR is the ratio obtained by dividing a borrower's annual principal and interest payments by annual income. If a person with an annual income of 50 million won has to repay 50 million won in principal and interest over a year, the DSR becomes 100%. Banks currently manage DSR at 40% or lower.
The financial authorities are reviewing a plan to apply the DSR rule to interest payments on high-value jeonse loans even for those without dwellings. Currently, the DSR rule applies only to principal and interest payments on mortgage loans and unsecured loans, and to interest payments on jeonse loans for single-home owners in the Seoul metropolitan area.
The financial authorities are also reviewing measures to restrict jeonse loans for non-resident single-home owners. They are deliberating how to distinguish genuine demand from investment demand. The aim is to block jeonse loans not used for actual residence and curb gap investing.
A plan to reduce the guarantee ratio for jeonse loans is also on the table. Reducing the guarantee ratio for jeonse loans in the Seoul metropolitan area and regulated areas from the current 80% to 70% is under discussion. If a jeonse loan becomes entirely nonperforming, it would mean banks' losses rise from 20% to 30%. Accordingly, the borrower's loan limit for jeonse loans from banks would be reduced.