Rising Jeonse Prices... Commercial Banks Raising Loan Thresholds

Outstanding Jeonse Loan Balance of 5 Major Banks Reaches 113 Trillion Won... 7.7 Trillion Won Increase in 4 Months

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] As jeonse (long-term lease) prices surge sharply, jeonse loan amounts have continued to increase rapidly, prompting commercial banks to raise the bar for jeonse loans one after another. Banks are not only raising loan interest rates by reducing preferential interest rate offerings but also increasingly stopping new loan approvals altogether. Banks explain this as part of household debt management measures, but concerns are growing that the difficulties for real demanders and low-income households will intensify.

According to the financial sector on the 22nd, the outstanding balance of jeonse loans at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?stood at 112.9776 trillion won as of the end of last month. This is an increase of 7.7 trillion won compared to the end of last year.

The increase in outstanding jeonse loans at banks is due to the skyrocketing jeonse prices along with rising housing prices. Demand for additional loans has increased not only for new contracts but also due to rising jeonse deposits. In particular, the implementation of the Lease Protection Act in July last year has been identified as a key factor driving up jeonse prices.

According to the Korea Real Estate Board, the jeonse prices of apartments in Seoul have been on the rise for 100 consecutive weeks from the third week of June 2019 to the second week of this month (based on the survey on the 10th). This is the longest continuous increase since the 192 consecutive weeks of rise from June 2014.

Banks Reduce Preferential Interest Rates and Halt New Loan Approvals

As demand for jeonse loans surged excessively, banks immediately moved to control demand. They have raised loan interest rates and stopped new loan approvals as a quick measure. Shinhan Bank lowered the maximum preferential interest rate on jeonse loans by 0.1 percentage points and further reduced preferential rates by 0.2 percentage points in March for jeonse products guaranteed by the Korea Housing Finance Corporation and the Housing and Urban Guarantee Corporation. Woori Bank also lowered preferential interest rates by 0.2 percentage points at the end of March and has stopped new loan approvals this month, citing the need to slow down.

One commercial bank initially planned to strengthen screening for jeonse loans on houses owned by landlords for six months or less but later withdrew the plan. This measure was intended to prevent jeonse loan fraud at the request of insurance companies but was put on hold after being perceived as an attempt to block jeonse loans altogether.

A representative from a commercial bank said, "Demand for jeonse loans has surged recently, so banks have no choice but to slow down. If some banks stop handling loans, demand may shift to other banks, which could lead all commercial banks to manage loan limits."

As the bar for jeonse loans rises, real demanders express dissatisfaction. Cases where new jeonse contracts scheduled for next month are not approved by their main banks or where jeonse loans have been rejected can be easily found on real estate communities and other platforms.

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