Increase in Small Lease Deposit and Household Loan Regulations... Mortgage Loan Limits to Decrease (Comprehensive)

Advance Notice of Legislation on House Price Increase
Household Debt Management Measures to Be Announced Soon

[Asia Economy Reporter Kiho Sung] As the government raises the small tenant deposit to protect tenants, it is expected to become more difficult to obtain mortgage loans. Increasing the small tenant deposit inevitably reduces the loan limit under the bank's loan calculation method. With banks tightening mortgage loans and jeonse loans under the financial authorities' orders, combined with the household debt management measures to be announced later this month, the loan limits for actual homebuyers are expected to drop significantly.

According to the financial sector on the 6th, the Ministry of Justice and the Ministry of Land, Infrastructure and Transport proposed and announced for public comment last month an amendment to the Enforcement Decree of the Housing Lease Protection Act to raise the small tenant deposit. This bill is expected to be promulgated as early as this month. The small tenant deposit refers to the deposit that tenants can be prioritized to recover if there is a problem with the rented house. This is intended to further strengthen tenant protection amid the recent overall rise in real estate prices.

According to the amendment, currently, tenants with deposits of 110 million won or less in Seoul can receive a maximum repayment amount of 37 million won, but tenants with deposits up to 150 million won will be able to receive a maximum of 50 million won, which is 35%, as a priority repayment. In the metropolitan area, the overconcentration control zone, and Sejong Special Self-Governing City, the amount will be raised from the existing 34 million won to 43 million won, and in other metropolitan cities and regions, it will increase from 20 million won to 23 million won.

However, from the perspective of those who own or purchase a house, the collateral value will decline due to the enforcement of the amendment. Currently, banks that receive mortgage loan applications calculate the loan limit by subtracting the small tenant deposit from the loan-to-value ratio (LTV) limit, regardless of whether the house is actually rented, in preparation for the case where the house is auctioned due to failure to repay the loan. For example, if a person owning a 300 million won house in Seoul receives a loan with an LTV of 50%, they can borrow up to 150 million won, but after the enforcement of the decree, excluding the increased repayment amount of 50 million won, they can actually borrow only 100 million won.

With Banks Tightening Household Loans and Stronger Regulations Expected This Month, Actual Homebuyers Will Inevitably Be Hit

The problem is that the mortgage loan limits for actual homebuyers may be significantly reduced. Already, commercial banks have tightened the limits or raised interest rates on mortgage and jeonse loans in response to the financial authorities' guidelines to strictly manage household loans. Shinhan Bank reduced preferential interest rates on mortgage and jeonse loans by 0.2 percentage points last month. Woori Bank reduced the preferential interest rate on jeonse loans by 0.2 percentage points, and NH Nonghyup Bank lowered the preferential interest rate on mortgage loans by 0.3 percentage points.

As banks tighten mortgage and jeonse loans, the growth rate of loans is also slowing down. At the end of last month, the outstanding mortgage loans of five banks amounted to 483.1682 trillion won, an increase of only 3.0424 trillion won (0.6%) from 480.1258 trillion won the previous month. Furthermore, if the Financial Services Commission announces stronger household debt management measures later this month, it may become even more difficult to obtain loans.

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