[Q&A] "Renting out a 1 Billion Won House for Education and Living on Jeonse in Gangnam? Loan Not Possible"

[Asia Economy Reporter Kim Hyo-jin] Starting from the 20th, private SGI Seoul Guarantee (SGI), along with public guarantee institutions such as the Korea Housing Finance Corporation (KHFC) and the Housing and Urban Guarantee Corporation (HUG), will restrict jeonse loan guarantees for owners of high-priced homes valued over 900 million KRW.

Additionally, if borrowers purchase high-priced homes or become multiple homeowners after receiving jeonse loan guarantees from these institutions, the jeonse loans will be recalled in almost all cases. This measure aims to more strictly block 'gap investment,' where people buy houses with jeonse deposits for speculative purposes.

On the 16th, the Financial Services Commission announced follow-up measures related to jeonse loans as part of the 'December 16 Housing Market Stabilization Plan.' A Financial Services Commission official stated, "We have no choice but to strictly respond to gap investments using jeonse loans that cause instability in the housing market," adding, "We will closely monitor future developments and consider additional measures if necessary."

Below is the Q&A from financial authorities regarding these measures.

- What are the main cases of jeonse loans prohibited after the regulation takes effect (from the 20th)?

▲ When an owner of a high-priced home valued over 900 million KRW applies for a new jeonse loan due to relocating to another area for their child's education. For example, if a person owns one house in Gangseo-gu worth 1 billion KRW and rents it out as jeonse (deposit 600 million KRW) due to their child's education, then plans to move to Gangnam-gu with a jeonse deposit of 800 million KRW in March, the additional loan of 200 million KRW is prohibited.

▲ When an owner of a home valued under 900 million KRW receives a jeonse loan, but the value of their owned home rises above 900 million KRW at the time of loan extension, making them a high-priced home owner. For example, if a person owns one house in Nowon-gu worth 700 million KRW and plans to take a 200 million KRW jeonse loan in March to live in a jeonse house worth 600 million KRW in Mok-dong, but the Nowon-gu house exceeds 900 million KRW by March, the loan is prohibited.

▲ When a high-priced home owner who received a jeonse loan before the regulation needs to increase the jeonse deposit or loan at the time of lease expiration due to the landlord's request. For example, if a person owns one house in Songpa-gu worth 900 million KRW and took a 200 million KRW jeonse loan in September 2018 to live in a Gangnam jeonse house worth 700 million KRW, but needs to increase the jeonse deposit due to the landlord's request in September, the loan increase is prohibited.

▲ When a high-priced home owner who received a jeonse loan before the regulation must move to another jeonse house at lease expiration due to the landlord's request. For example, if a person owns one house in Songpa-gu worth 900 million KRW and took a 200 million KRW jeonse loan in September 2018 to live in a Gangnam jeonse house worth 700 million KRW, but must move to another jeonse house within the same apartment complex due to the landlord's self-occupancy in September, the loan is prohibited.

▲ When a non-homeowner jeonse loan borrower purchases a high-priced home during the loan period and plans to move at lease expiration. For example, if a person takes a 200 million KRW jeonse loan in March to live in a Gangnam jeonse house worth 700 million KRW, then purchases a high-priced home in Ilsan worth 500 million KRW (with jeonse succession) around June next year after retirement, and plans to move in March 2022 at lease expiration, the loan will be recalled.

- What are the transitional measures for those already using SGI Seoul Guarantee jeonse loans before the regulation?

▲ For trust protection, high-priced single-home owners who received SGI jeonse loan guarantees before the regulation are allowed to extend their loans. However, if they acquire a high-priced home after the regulation takes effect, extensions will not be permitted.

▲ Even for high-priced single-home owners who received jeonse loan guarantees before the regulation, if moving to another jeonse house or increasing the loan is involved at maturity, re-use of guarantees is restricted. However, if the owned single home’s market value is 1.5 billion KRW or less as of the regulation date and the borrower moves to another jeonse house without increasing the loan by April 20, one exceptional re-use of SGI guarantee is allowed.

- What is the specific scope of 'actual residence' and 'real demand' purposes for which high-priced single-home owners can exceptionally use jeonse loan guarantees?

▲ Exceptions for jeonse loan guarantees are allowed for actual residence needs outside the home location due to job transfer, child education, medical treatment, or parental care. In such cases, proof of real demand is required through documents such as employer-issued certificates (job transfer), child enrollment certificates or acceptance letters, medical diagnosis, and opinion letters.

▲ Moving between districts (gu) within Seoul or metropolitan cities is not recognized as an exception. Household members must actually reside in both the owned home and the jeonse house.

- What are the specific details of transitional measures for those using jeonse loans before the regulation?

▲ Those who received jeonse loans before the regulation will not have their loans recalled even if they purchase high-priced homes or become multiple homeowners after the regulation, and can use the jeonse loan until maturity.

- How will detailed verification of home ownership and other factors for borrowers be conducted?

▲ Going forward, jeonse loan borrowers must sign an additional agreement at loan execution stating that loans will be recalled if high-priced homes are acquired or multiple homes are owned during the loan period. Banks will verify compliance every three months at most using the Ministry of Land, Infrastructure and Transport’s home ownership verification system.

- What actions will be taken against borrowers who violate the regulations?

▲ Borrowers will be obligated to repay principal and interest immediately, and if unpaid, will be registered as delinquent borrowers with penalties such as delinquency interest. Borrowers subject to loan recall will be restricted from using housing-related loans for the next three years.

- If a jeonse loan borrower purchases a home that was not high-priced at the time of purchase, will the loan be recalled?

▲ In principle, the home price is judged based on the acquisition date. If the home was not high-priced at purchase, even if its market value rises later to become high-priced, the loan will not be recalled. For example, if a borrower takes a jeonse loan on March 1 and purchases a non-high-priced home worth 700 million KRW on September 1, but the value rises above 900 million KRW by next March 1, the loan will not be recalled early.

- Will loans be recalled if a borrower becomes a high-priced single-home or multiple homeowner through inheritance or gift?

▲ If a borrower becomes a high-priced single-home or multiple homeowner through purchase or gift after the regulation, the loan will be recalled. However, inheritance is excluded from loan recall because it is acquired naturally regardless of the borrower’s intention or action.

- Can a non-homeowner jeonse loan borrower who purchases a high-priced home in another region due to job transfer or other real demand be exempt from loan recall?

▲ Even if there is actual residence demand outside the home location due to job transfer or child education, purchasing a high-priced home is generally not considered an unavoidable real residence demand, so the loan recall regulation exception does not apply.

- If a non-homeowner jeonse loan borrower purchases a high-priced home during the jeonse period for their own residence at lease expiration, will the loan recall exception apply?

▲ If a high-priced home is acquired after the regulation, the jeonse loan will be recalled. Since there is a gap investment effect using the jeonse loan until the lease period expires, recall is necessary as a regulation.

This content was produced with the assistance of AI translation services.