Ultra-high-priced Jeonse Loans May Be Blocked Starting as Early as Next Month

Financial Authorities and SGI Seoul Guarantee Consider 'Suspension of Guarantees' for Ultra-High-End Jeonse Loans
Ultra-High-End Threshold Expected at 1.5 Billion KRW or More

[Image source=Yonhap News]

From as early as next month, ‘ultra-high-priced jeonse loans’ will be restricted. The market expects the threshold to be set at 1.5 billion KRW or more. This measure is interpreted as a response to the surge in jeonse contracts with deposits exceeding 1.5 billion KRW, mainly in Seoul, due to concerns that it could potentially ignite further increases in housing prices.

According to the financial sector on the 8th, Go Seung-beom, Chairman of the Financial Services Commission, said to reporters the day before, "SGI Seoul Guarantee Insurance, which has raised concerns about ultra-high-priced jeonse loans, will take the lead in reviewing (the suspension of guarantees)."

Currently, there are three financial institutions that guarantee jeonse loans. Public institutions such as the Korea Housing Finance Corporation and the Housing and Urban Guarantee Corporation (HUG) provide guarantees only for jeonse deposits below a certain amount, whereas the private company SGI Seoul Guarantee does not set any limit.

The threshold for restricting jeonse loans is expected to be 1.5 billion KRW or more. This is the same standard as the ban on mortgage loans. Initially, it was expected to be 900 million KRW or more, but Chairman Go explained, "Since there are many jeonse contracts exceeding 900 million KRW, it will be reviewed at a much higher level than that."

The implementation timing is likely as early as next month or as late as next year. Since the government plans to implement principal installment repayment for jeonse loans starting next year, it is more likely to be enforced in line with this. To protect actual homebuyers without homes, existing borrowers will be excluded, and the regulation will apply only to new loan cases.

The government’s announcement of regulations on ultra-high-priced jeonse loans is analyzed to be due to recent unusual signs in the housing market. It is interpreted as a strong intention to curb ultra-high-priced jeonse loans first to prevent soaring jeonse prices from naturally leading to increases in sale prices.

According to the Ministry of Land, Infrastructure and Transport’s apartment transaction price system, the number of apartments in Seoul with deposits exceeding 1.5 billion KRW from January to October this year was 53, which is about 18 times higher than in 2018 (3 places).

The still large increase in household loans is also believed to have had an impact. The outstanding household loans of the five major commercial banks reached 706.3258 trillion KRW last month, an increase of 3.438 trillion KRW from the previous month. Despite strengthened household debt management measures, the rapid increase in mortgage loans, including jeonse loans, has had an effect.

Some express concerns that a side effect of restricting ultra-high-priced jeonse loans could accelerate the shift from jeonse to monthly rent or half-jeonse. The practice of taking jeonse loans up to the guaranteed limit and covering the rest with monthly rent is becoming entrenched, which could further burden actual homebuyers and others. A financial sector official said, "The conversion from jeonse to monthly rent or half-jeonse could accelerate, especially in the metropolitan area," adding, "Those planning to move to areas like Daechi-dong or Mok-dong for their children’s education will face deeper concerns."

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