Starting Tomorrow, Restrictions on Reverse Jeonse Refund Loans Will Be Lifted

For Deregulation, 'Tenant Protection Special Agreement' Is Essential
If a Successor Tenant Is Not Found Within One Year, Must Move In or Repay in Full

Starting tomorrow, for landlords facing difficulties in returning jeonse deposits, regulations on loans for the purpose of returning jeonse deposits through banks (excluding internet-only banks) will be temporarily eased for one year. This is aimed at supporting tenants who are struggling due to incidents or concerns of non-return of jeonse deposits.

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The Financial Services Commission announced on the 26th that from the 27th, regulations on loans for the purpose of returning jeonse deposits, such as the Debt Service Ratio (DSR) and Rental Business Interest Repayment Ratio (RTI), will be temporarily relaxed for one year. This is a follow-up measure to the economic policy direction for the second half of 2023 announced by the government earlier this month.

The target of this regulatory relaxation is cases where lease contracts were signed before July 3, 2023, and where return demands arise by July 31, 2024, such as lease contract expirations, involving individuals or rental business operators who are having difficulty returning jeonse deposits due to reverse jeonse. Housing types include not only apartments but also row houses, multi-family houses, and residential officetels.

Regarding loan limits, individuals will be exempt from the existing DSR 40% application and will only be subject to a Debt-to-Income ratio (DTI) of 60%. For rental business operators, an RTI of 1.0 times, lower than the existing 1.25 to 1.50 times, will be applied. The loan amount is principally to support the difference in jeonse deposits, and if necessary, the full jeonse deposit can be loaned first, with the difference repaid afterward.

The authorities will provide funds within the relaxed loan regulations to ensure that jeonse deposits are smoothly returned to existing tenants, whether the landlord secures a subsequent tenant and takes a loan for the deposit difference or fails to find a subsequent tenant immediately, with the expectation that the loan amount will be repaid within one year after securing a subsequent tenant.

Additionally, if the landlord moves in directly, loan support for return funds will be provided on the condition that the landlord’s ability to repay independently is strictly verified. However, in this case, the landlord must move in within one month after loan execution and will be subject to management measures such as monitoring actual residence for at least two years thereafter.

This measure comes with strict conditions as it aims to prevent tenant damages caused by reverse jeonse. During the loan support process, it will be confirmed whether the landlord has any other means to repay the jeonse deposit besides the loan, and the loan funds will be paid directly to the current tenant to prevent misuse. Furthermore, during the loan usage period, purchasing a new house is prohibited, and if a house purchase is detected, the loan will be fully recalled and penalties such as a three-year ban on mortgage loans will be imposed.

A protective device has also been established to prevent the burden on subsequent tenants from increasing due to the landlord’s expansion of senior loans. Landlords wishing to benefit from the regulatory relaxation must enter into a lease contract with a special clause for 'jeonse deposit return guarantee subscription' with the subsequent tenant, and banks will support loans on the premise that this special clause is faithfully implemented. The landlord must subscribe to the jeonse deposit return guarantee or pay the guarantee fee within three months after the subsequent tenant moves in. Failure to fulfill this obligation will result in sanctions such as full loan recall.

The authorities plan to temporarily operate a new guarantee insurance product through policy institutions to ensure landlords fulfill these obligations properly. A product without a jeonse deposit limit that protects the subsequent tenant’s deposit and is subscribed to by tenants will be available starting tomorrow, and a product for landlords to subscribe directly will be launched next month.

A government official stated, “The reverse jeonse issue can exacerbate difficulties in the rental market due to delayed jeonse deposit returns and tenant relocations, so the purpose is to minimize market shocks by temporarily easing loan regulations for jeonse deposit returns. However, to prevent side effects such as increased household debt and increased risk of non-return of deposits to subsequent tenants, institutional safeguards such as verifying landlords’ repayment ability and strengthening tenant protection measures will be strictly managed.”

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