"Mortgage Loans Not Allowed" Surge in Ultra-High Jeonse Over 1.5 Billion Won... Authorities Consider Suspension of Guarantees (Comprehensive)

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
Concerns Raised Over Side Effects Such as Acceleration of Monthly Rent and Ban Jeonse Trends

[Asia Economy Reporter Kim Jin-ho] ‘Ultra-high-priced jeonse loans’ are being restricted. The market perceives the threshold to be 1.5 billion KRW or more. As jeonse contracts with deposits exceeding 1.5 billion KRW have surged mainly in Seoul, this measure is interpreted as a precaution to prevent it from becoming a ‘trigger’ for further housing price increases.

According to the financial sector on the 8th, Financial Services Commission Chairman Ko Seung-beom said in a meeting with reporters the day before, "SGI Seoul Guarantee Insurance, which has received criticism regarding 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 Ko 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 financial authorities have decided to actively encourage principal installment repayment of jeonse loans starting next year, it is analyzed that the implementation will likely align with this. Regarding this, a Financial Services Commission official said, "There are no plans to implement guarantee restrictions on ultra-high-priced jeonse loans within this year." He added, "We have never considered mandating installment repayment of jeonse loans and have no plans to do so in the future."

The regulation on ultra-high-priced jeonse loans is expected to apply only to new loans, excluding existing borrowers, to protect actual homebuyers without homes.

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 actual transaction price system, the number of Seoul apartments with deposits exceeding 1.5 billion KRW from January to October this year was 53, which is about 18 times the 3 cases in 2018.

The still large increase in household loans is also believed to have influenced this. 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 housing mortgage loans, including jeonse loans, has had an impact.

Some express concerns that a side effect of restricting ultra-high-priced jeonse loans could be an accelerated shift from jeonse to monthly rent or semi-jeonse. The practice of borrowing jeonse loans up to the guaranteed limit and paying the remainder as monthly rent may become entrenched, further burdening actual homebuyers. A financial sector official said, "The conversion from jeonse to monthly rent or semi-jeonse may 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."

Meanwhile, regulations on jeonse loans, identified as the main cause of this year’s rapid increase in household debt, are expected to be further strengthened starting next year, beginning with restrictions on guarantees for ultra-high-priced jeonse loans.

The financial authorities plan to expand incentives for installment repayment of jeonse loans, such as preferential allocation of policy mortgages to financial companies with excellent installment repayment performance starting next year. Additionally, the banking sector’s measures to limit jeonse loan amounts according to the increase in lease deposit during lease contract renewals are expected to be operated more tightly.

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