Support Pillar Jeonse Loan Interest Rate Frozen; Up to 200,000 KRW Monthly Rent Support for Low-Income Youth

Ministry of Land, Infrastructure and Transport's Measures for Stability in the Housing Sector

[Image source=Yonhap News]

[Asia Economy Reporter Kim Min-young] The government has decided to freeze the interest rates on the Buteummok Jeonse Loan this year to alleviate the burden of loan interest caused by the interest rate hikes. Additionally, to reduce the monthly rent burden on vulnerable groups, it will provide up to 200,000 KRW per month in rent support to low-income youth. The LH rent freeze measure, originally scheduled to end this year, will be extended for another year.

The Ministry of Land, Infrastructure and Transport announced these measures as part of the "Housing Sector Livelihood Stabilization Plan" at the "3rd Emergency Economic and Livelihood Meeting" presided over by President Yoon Seok-yeol.

The jeonse price increase rate in the first half of this year was 0.6%, showing a slowdown in the rise of jeonse prices since the beginning of the year, but compared to three years ago, jeonse prices themselves have risen significantly. According to the Ministry of Land, as of June, the median jeonse price for apartments in the metropolitan area rose from 290 million KRW in 2019 to 389 million KRW in 2022, an increase of nearly 100 million KRW. With jeonse prices already having risen substantially, and jeonse loan interest rates continuously increasing, tenants' housing cost burdens have grown. In fact, the jeonse loan interest rate at a major commercial bank (Bank A) rose from an average of 3.24% at the end of last year to between 3.59% and 4.79% in June.

The "monthly rent-ification" of jeonse is also progressing rapidly. The proportion of monthly rent transactions in total lease transactions increased from 40.1% in 2019 to 51.9% from January to May this year, surpassing half of all lease transactions. This is interpreted as being due to landlords shifting to monthly rent to pass on the increased loan interest burden caused by rising interest rates, and tenants preferring monthly rent because it is cheaper than loan interest costs.

As jeonse prices rise and interest burdens increase, the Ministry of Land has decided to freeze the interest rates on the Housing and Urban Fund Jeonse Loan (Buteummok) this year. The Buteummok Jeonse Loan is a product that allows low-income earners with annual incomes below 50 million KRW to borrow money at relatively low interest rates (1.2% to 2.4%) compared to market rates. According to the Ministry, assuming an average loan amount of 63 million KRW per person, this measure is expected to reduce annual interest payments by 315,000 KRW. Approximately 65,000 households are estimated to benefit from this measure with new loans in the second half of the year.

Support limits will also be expanded, especially for youth and newlyweds. Previously, youth could borrow up to 70 million KRW, newlyweds in the metropolitan area up to 200 million KRW, and those in other regions up to 160 million KRW. These limits will be increased to 200 million KRW for youth, 300 million KRW for newlyweds in the metropolitan area, and 200 million KRW for other regions. Additionally, from August, the deposit and loan limits for Buteummok preemptive loans for low-income tenants whose renewal contracts expire within the next year will be expanded.

Monthly rent support of 200,000 KRW will be provided to low-income youth. Starting in November, the government will provide up to 200,000 KRW per month for up to one year to youth with incomes below 60% of the median income. It is estimated that 152,000 people will benefit. Furthermore, the nationwide LH rental housing rent freeze measure, originally scheduled to end this year, will be extended for one more year. This applies to contracts from 2023 to 2024, benefiting 1,065,000 households. For permanent rental housing, management fees will also be further reduced.

The scope and amount of housing benefit support will also be expanded. The government plans to increase the number of households eligible for housing benefits from 1.27 million to 1.75 million and relax the eligibility criteria from 46% of median income to below 50% of median income. Reflecting recent inflation, the support amounts will also be increased. Currently, housing benefits range from 163,000 KRW to 621,000 KRW depending on region and household size. The government will finalize the annual eligibility range after approval by the Central Living Security Committee.

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