New rules try to limit diversion of jeonse loans

Seoul will tighten the qualifications to obtain a loan guarantee for a lump-sum housing lease. It said it has found abuse of such jeonse loans, which help renters finance the cost of the lump-sum deposit on an apartment at favorable rates. The deposit, often in the hundreds of millions of won, is refunded at the end of the lease term, usually two years.

Because of loopholes and loose enforcement, some self-described renters are using the loans to finance housing purchases rather than rentals. A key element is that the jeonse loans are available for up to 80 percent of the required amount and at favorable interest rates. Mortgage loans, on the other hand, are available for only 40 percent of the real estate cost and carry a higher interest rate.

Evidently not wishing to regulate the loans directly, the Financial Services Commission (FSC) said Sunday that from Oct. 15, loan guarantees from two government agencies and one private company will not be given to applicants who already own two or more apartments. The commission called this a step to cool off the market.

The guarantees, available from the Housing Finance Corporation, Korea Housing and Urban Guarantee Corporation and Seoul Guarantee Insurance Company, are almost always required by banks as a condition of granting a jeonse loan. The policy, when announced, was aimed mainly at people with lower incomes and credit scores; thus, loan amounts and repayment terms were relatively generous.

Under existing regulations, there is no restriction on the number of apartments a person can own when applying for a jeonse loan. But people now over the limit will have to sell their extra housing units within two years in order to qualify for a loan guarantee extension and cannot obtain new guarantees until they own fewer than two housing units.

Another new restriction is that jeonse loans will not be guaranteed by the Korea Housing Corporation or the Korea Housing and Urban Guarantee Corporation to married owners of a single apartment if the couple’s combined annual income is more than 100 million. That requirement does not apply to the Seoul Guarantee Insurance Company, a private entity.

When applying for a mortgage loan in areas designated as a “speculation overheated region,” which includes all of Seoul, a borrower can only get 40 percent of the apartment value, compared with as much as 80 percent for a mortgage loan. Jeonse deposit prices often approach the market value of a housing unit in popular areas.

And a jeonse loan is much easier to get than a mortgage loan; the applicant has to show only the jeonse contract.

The Financial Services Commission said jeonse lending grew 37.2 percent in the second quarter, up from the first quarter’s rate of 33.4 percent. That quarterly growth is eye-catching, especially considering that growth in jeonse loans was only 27.9 percent for all of 2017.

The FSC also said it would step up its monitoring, which includes a requirement for financial institutions that provide jeonse loans to check regularly if the borrower actually lives in the apartment associated with the loan. Banks will also be asked to keep track of changes in borrowers’ total housing unit ownership.

If a borrower does not actually live in the apartment, the loan is due and payable immediately. If a borrower owns more than two apartments, the extension of the loan guarantee will be dependent on the borrower’s disposal of excess housing units.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]