Interest Rate Hikes and Jeonse Price Increases... Only Increasing Interest Burden for Ordinary People

Banks Rapidly Raise Loan Interest Rates Amid Government Regulations on Jeonse Loans
Supply Decreases and Deposits Rise, Loan Conditions Also Worsen
Interest Burden Likely to Increase for Genuine Buyers Including Prospective Couples

[Asia Economy Reporters Kim Jin-ho and Moon Je-won] Bride-to-be Kim Hee-joo (34, pseudonym) recently visited a commercial bank to find a jeonse (long-term lease) house ahead of her wedding next spring, only to experience a frustrating situation. During the initial consultation, she was informed that the interest rate would be 2.9% per annum, but when she tried to apply the next day, the rate had risen to 3.55%. Kim strongly protested, saying it was unreasonable to pay an additional 160,000 KRW in monthly interest within just one day. However, the bank employee told her that if she did not want the loan, she should seek consultation at another bank.

The surge in jeonse loan interest rates is interpreted as a result of the government's strong regulatory stance. Banks have rapidly increased loan interest rates by raising additional interest rates and abolishing preferential rates in line with government policies. Although jeonse loans were excluded from additional household debt measures, the rapidly rising interest rates are increasing borrowers' anxiety. With further interest rate hikes expected within the year and rising jeonse prices leading to increased loan demand, the interest burden on ordinary citizens is expected to grow even heavier.

According to financial authorities on the 1st, major real estate and wedding preparation communities have been flooded daily with posts such as "When did jeonse loan interest rates rise this much?" and "I'm very anxious about my upcoming jeonse loan extension." Dissatisfaction among real demand borrowers who cannot borrow money from banks is growing. The problem is that not only gap investors but also prospective couples who need to find actual homes and ordinary citizens who must move due to work issues are suffering from the sharp rise in loan interest rates.

For example, a borrower who took out a 20 million KRW loan at 2.5% per annum earlier this year would pay 416,000 KRW in monthly interest. However, borrowers with new or extended jeonse loans at a recently increased rate of 3.5% must pay 583,000 KRW monthly, an additional 180,000 KRW per month. Annually, this amounts to about 2.16 million KRW. Especially since most jeonse loans have variable interest rates based on a six-month term, if the base interest rate rises in the future, the interest burden will inevitably increase further.

Professor Sung Tae-yoon of Yonsei University's Department of Economics expressed concern, saying, "Overall interest rate increases seem inevitable going forward. As inflation rises, discussions about the base interest rate will become more active, and accordingly, the loan winter will intensify."

As jeonse loan interest rates rise, tenants in Seoul and the metropolitan area are also feeling increased burdens. Last year, the new lease law reduced jeonse listings and raised deposit amounts, increasing housing costs, and now loan conditions have worsened significantly. Consequently, lease transactions have sharply declined even during the autumn moving season. According to the Seoul Real Estate Information Plaza, last month’s jeonse and monthly rental transactions in Seoul totaled 9,382, the lowest level this year. Compared to October last year (16,696 transactions), this is a 43.80% decrease. Considering that autumn is typically a busy season for lease transactions, this is an unusual situation.

However, jeonse prices continue to rise. Although listings have somewhat increased, high sale prices limit the decline in jeonse prices. Expectations that jeonse demand will further increase due to pre-sale and high sale prices are also interpreted as influencing prices. According to statistics from the Korea Real Estate Board, last week Seoul apartment jeonse prices rose by 0.13%, maintaining the same increase for three consecutive weeks. The metropolitan area (0.21%) and provinces (0.15%) show similar trends.

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