"Aftermath of the Lease Act: Demand for Jeonse Loan Expected to Surge in the Second Half"

Many Households Expected to Lose August Lease Renewal Rights... Loans Increase for Four Consecutive Months

[Image source=Yonhap News]

[Asia Economy Reporters Kim Hyemin and Bu Aeri] Concerns are growing that the Lease Protection Act, entering its second year of enforcement this August, could fuel the expansion of jeonse (long-term lease) deposit loans. As households whose right to request lease renewal has expired sequentially enter the rental market, loan demand could surge significantly in the second half of this year. A banking industry official said on the 8th, "There could be a sharp increase in people trying to cover rising jeonse prices with loans."

While household loans at commercial banks have decreased over the past five months, jeonse deposit loans have steadily increased for four consecutive months. The reason jeonse deposit loans show a trend opposite to household loans is that they are subject to relatively fewer regulations. Unlike mortgage loans, which make up a large portion of household loans and are strictly regulated based on housing prices and income levels, jeonse deposit loans classified as real demand loans can be relatively easily financed. They are not subject to Loan-to-Value (LTV) and Debt Service Ratio (DSR) regulations, allowing loans typically exceeding 80% of the jeonse deposit.

As household loans have stabilized this year, banks have also lowered the threshold for jeonse deposit loans, which appears to have had an impact. Recently, the five major commercial banks, with increased lending capacity due to the decrease in household loans, have raised the loan limit to within 80% of the rental deposit and changed their policy to allow loan execution even after the balance payment date. However, with jeonse prices expected to rise after the lease renewal right expires at the end of July, jeonse loans are likely to increase even more sharply.

In fact, the number of households whose renewal rights expire between August and December this year is estimated at 14,284 units (apartment basis) in Seoul alone. These households used their renewal rights two years ago and were subject to the Jeonse and Monthly Rent Cap System, which limits the increase in rental deposits to within 5%. While housing stability was guaranteed, after the jeonse renewal contracts ended and these households re-entered the rental market, they faced jeonse prices that had risen sharply over the past two years. Real Estate R114 analyzed that an average additional 126.5 million KRW in funds is required to re-contract apartments in Seoul where the jeonse renewal period has ended.

The problem is that even if jeonse loans increase rapidly, there are few measures to control them. Since these loans are perceived as part of social welfare finance for low-income households, artificially restricting loans could face criticism for jeopardizing housing stability for the underprivileged. On the other hand, if restrictions are completely lifted, it could become a major cause of increasing household loans, which have been barely controlled to prevent an economic crisis. An industry insider said, "While being cautious about the surge in loans, a balance must be found to ensure that real demand borrowers do not suffer."

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