"Jeonse Loan Interest Rate at 3% but No Borrowing"... Causes of Deposit Decline and Conversion to Monthly Rent

Decrease in Jeonse Loan Balances in Banking Sector Continues
Increased Risk of Deposit Return Due to Jeonse Fraud
Rise in Monthly Rent Contracts and Decline in Jeonse Deposits

Jeonse Loan Interest Rates Fall to Lower 3% Range

[Image source=Yonhap News]

Although interest rates have dropped to 3%, the outstanding balance of jeonse deposit loans in the banking sector continues to decline. This is due to increased risks of deposit refunds caused by jeonse fraud, a rise in monthly rent contracts in the rental market, and a decrease in deposit amounts. According to the 'Market Fund Flow Trends' report by Hana Financial Management Research Institute on the 4th, the decrease in the outstanding balance of jeonse loans in the banking sector is expected to be inevitable going forward.

Clear Decline in Jeonse Deposit Loans

Looking at the changes in jeonse deposit loans from domestic deposit banks (commercial banks, regional banks, and foreign bank branches), a clear downward trend began in the second half of last year. The rate of decrease is also growing. Since turning negative in November last year (-1 trillion KRW), the balance has decreased every month (December last year -400 billion KRW → January this year -1.8 trillion KRW → February -2.5 trillion KRW → March -2.3 trillion KRW).

Narrowing down to the five major banks (KB, Shinhan, Hana, Woori, NH), the downward trend is even more pronounced. The outstanding balance of jeonse deposit loans has continuously decreased from October last year to April this year. As of the end of April, it was approximately 124.9 trillion KRW, which is about 9.3 trillion KRW less than the peak in September last year (about 134.2 trillion KRW).

On the other hand, the volume of nationwide apartment jeonse and monthly rent transactions is increasing. From January last year to January this year, it remained between 50,000 and 60,000 cases. Then, in February, it jumped to 80,000 cases. Ha Seo-jin, a research fellow at Hana Financial Management Research Institute, said, "Despite the increase in jeonse and monthly rent transactions, the level of rental deposits has fallen, leading to a decrease in the outstanding balance of jeonse loans." He added, "Along with tenants' psychological contraction and preference for monthly rent, landlords' jeonse gap investment is shrinking, and their profit-seeking behavior is shifting from capital gains to monthly rent income, so the outstanding balance of bank jeonse deposit loans will continue to decline."

Low Loan Interest Rates but No Use of Jeonse Loans

Currently, the interest rates on jeonse deposit loans in the banking sector are lower than those on mortgage loans or unsecured loans. However, this trend has not changed the shift from jeonse to monthly rent. On the 3rd, the lower end of mortgage loan interest rates at the five major banks was clustered in the 3% range, except for Hana Bank.

Among them, KB Kookmin Bank had the lowest jeonse deposit loan interest rates, with a 6-month variable rate of 3.69?5.09% and a fixed rate of 3.70?5.10%. This is similar to the level on May 1 last year (variable rate 3.14%?4.34%). A representative from a commercial bank explained, "Last month, COFIX (Cost of Funds Index) slightly decreased, and the 2-year bank bond rate, which serves as the benchmark for jeonse loan interest rates, also fell."

Meanwhile, the outstanding balance of mortgage loans in the financial sector also decreased. Based on the five major banks, it was about 509 trillion KRW at the end of last month. This is a reduction of 2.2 trillion KRW compared to the previous month (511.2 trillion KRW). Although there was a brief increase trend at the end of last year and the beginning of this year, it was only temporary. As of the 3rd, the variable mortgage loan interest rates at the five major banks ranged from 4.09% to 5.86%, and fixed rates ranged from 3.70% to 5.88%, slightly higher than jeonse loan interest rates.

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