The financial authorities will raise this year's household debt total growth rate management target to around 3% from the previous 1.5% year over year. The financial authorities estimated that easing the total household debt cap would unlock roughly 30 trillion won in additional household loans. For "non-resident single-home owners" who bought apartments in the Seoul metropolitan area and other regulated zones and rent them out without living there, new jeonse loans are in principle banned and renewals of existing jeonse loans are also restricted.
The Financial Services Commission on the 13th announced a "comprehensive financial package for stabilizing the real estate market." The Financial Services Commission (FSC) said it adjusted the household debt total growth rate in light of the need to promote dwellings supply and support young people and end users.
The financial authorities estimated that under the new rules, the scale of this year's household loans supply by all financial institutions will increase from just over 30 trillion won to just over 60 trillion won. However, they will maintain the existing policy direction of easing the overall pace of household liability growth. That is because Korea's household debt remains higher than that of major countries relative to gross domestic product (GDP), and easing lending rules could again stimulate the real estate market.
The Financial Services Commission (FSC) plans to focus the increased lending capacity from the higher household debt growth rate target on policy goals such as promoting dwellings supply, stabilizing housing for young people, and supporting end users.
By contrast, oversight of unsecured loans will be tightened. This year, unsecured loans have been rising faster than last year, prompting banks to reduce mortgage lending to meet the set total for household loans. The aim is to ensure the growth of unsecured loans does not erode end users' borrowing capacity for dwellings-related loans.
To strengthen the "block on speculative loan demand," the financial authorities will expand the subjects of jeonse loan guarantee restrictions and cut the guarantee ratio for single-home owners. Currently, guarantors such as the Korea Housing Finance Corporation, the Korea Housing & Urban Guarantee Corporation (HUG), and Seoul Guarantee Insurance Company restrict jeonse loan guarantees for multi-home owners and those who acquire apartments over 300 million won in speculative and overheated speculative zones. The Financial Services Commission (FSC) will add "non-resident single-home owners with speculative intent" to the restricted category.
Speculative intent must meet all of the following: ▲ the couple, on a combined basis, owns one apartment in the Seoul metropolitan area or another regulated zone ▲ the dwelling is rented to someone else ▲ neither the person nor the spouse has ever actually lived in that home. However, if the home is rented to the person's or spouse's lineal ascendants or descendants, it is excluded from the restrictions. According to the Financial Services Commission (FSC), jeonse loans currently taken out by single-home owners who own apartments in the Seoul metropolitan area and other regulated zones total 9.3 trillion won (60,000 cases).
Exceptions will be allowed for unavoidable reasons. If a person must reside in the owned dwelling going forward due to a legal obligation, a new jeonse loan or a maturity extension is allowed. If someone purchases a dwelling with a condition to assume an existing lease and cannot move in because the lease has not ended, the maturity of the existing jeonse loan can be extended until the lease expires. If the landlord does not return the deposit and repayment of the jeonse loan is difficult, a maturity extension is also permitted.
If a temporary extension of a jeonse loan is needed because the moving schedule does not align with contract dates, for example, a short-term extension within six months will be allowed.
The jeonse loan guarantee ratio for single-home owners will also be lowered. The current jeonse loan guarantee ratio is 80% in the Seoul metropolitan area and other regulated zones and 90% elsewhere. Going forward, for single-home owners, these will be lowered by 10 percentage points to 70% and 80%, respectively. A lower guarantee ratio reduces the loan limit available from banks. For those without a home, the current guarantee ratios of 80% in the Seoul metropolitan area and other regulated zones and 90% elsewhere will remain in place. The jeonse loan regulations take effect on Jan. 1 next year.