[단독] Jeonse loan for the common people?… Lower income earners have turned to monthly rent

View of an apartment complex in downtown Seoul as seen from Namsan, Jung-gu, Seoul on the 3rd. | Reporter Seong Dong-hoon

In the name of stabilizing housing for low-income people, an analysis found that leasehold loans, which have a guarantee of close to 100% and are not subject to any particular loan regulations, actually benefit landlords rather than low-income people. As house prices and lease prices rise and the aftermath of lease fraud overlaps, low-income people are pushed into monthly rent. On the other hand, a jeonse loan can be received even for a house with a jeonse deposit of 900 million won or more, but it is pointed out that it is a factor in encouraging gap investment and raising house prices.

As a result of the Kyunghyang Shinmun’s analysis of household financial welfare survey microdata (2017-2023) commissioned by the Korea Urban Research Institute on the 21st, the proportion of jeonse rentals for households in the first quintile (lowest 20% of income) in the metropolitan area increased from 20.2% in 2017 to 17.4% in 2023. decreased to %. The proportion of monthly rent increased by about 4 percentage points from 37.3% to 41.2% during the same period.

Housing conditions also worsened. The first income quintile’s share of all apartment rentals peaked at 10.2% in 2018, but fell to 8.5% last year. Instead, the proportion of monthly rent living in non-apartments rose by about 6.6 percentage points from 26.1% in the same period to 32.7% last year. Second quintile households (lower income 40%) also increased from 32.9% to 34.1% during the same period. Hong Jeong-hoon, a researcher at the Korea Urban Research Institute, said, “As house prices and jeonse rents are rising, it has become difficult for those in the lower income bracket to enter the jeonse market. The jeonse fraud situation has also caused a phenomenon of people avoiding jeonse rentals for non-apartments, with the first and second quintiles turning to monthly rents.” “It appears that demand has increased,” he said.

<img width="700" src="https://img.khan.co.kr/news/2024/10/21/news-p.v1.20241021.0cb696c10e5d48cfabd54fc3b464fe03_P1.jpg" alt="[단독] Jeonse loan for the common people?… Lower income earners have turned to monthly rent”/>

71% of all households with jeonse rentals are in the top 40% of income brackets
A house worth over 900 million won is also being rented out for 1.9 trillion won.

Conversely, the share of jeonse for the top 40% of income earners increased by 2.4 percentage points last year from 38.8% in 2017 to 41.2%. Additionally, the top 40% of income earners accounted for 71% of all households that took out an apartment rental loan last year. This is an increase of 4.4% points compared to 2017 (66.6%). The jeonse loan for expensive leases exceeding 900 million won in deposit (as of February this year) was also calculated at 1.9 trillion won. Song In-ho, director of the Economic Information Center at the Korea Development Institute (KDI), said, “Jeonse loans are not just for the working class,” and added, “As the jeonse deposit is used as the difference in loans to purchase a house, the actual beneficiaries are the landlords.”

The reason behind this increase in leasehold loans, where the beneficiaries are concentrated in the upper income class and landlords (renters), is the guarantee ratio of guarantee institutions. When tenants receive a lease loan, they can receive public and private guarantees. The Korea Housing Finance Corporation (HF) guarantees 90%, and the Housing and Urban Guarantee Corporation (HUG) and SGI Seoul Guarantee each guarantee 100%. Unlike home mortgage loans, jeonse loans are not subject to regulations such as debt service ratio (DSR) and are provided with a guarantee of approximately 100%, which is highly likely to cause lax screening and excessive lending by financial institutions.

As the balance of jeonse loans has soared, the Financial Services Commission is considering lowering the guarantee ratio to 80% and plans to tighten the annual guarantee supply. However, if the guarantee ratio is drastically lowered, on-site confusion seems inevitable. In particular, there is a risk that most working-class people living in non-rental apartments will not receive their deposit back on time. If the guarantee ratio decreases, there is a possibility that the lessor will reverse the lease. Director Song said, “Considering the risk of jeonse fraud, it may be helpful to gradually reduce the jeonse deposit and increase the monthly rent for non-apartments,” adding, “Introducing a rent cap system (5% rule) to account for the increase in monthly rent when the jeonse rent is reversed, etc. “There is a need to supplement policies to prevent the housing cost burden from rising rapidly,” he said.

Shin Yong-sang, head of the Financial Risk Research Center at the Korea Institute of Finance, also said, “The biggest reason why jeonse loan loans have increased so much is because the political world has a dichotomous view that all jeonse loan tenants are the housing vulnerable class,” adding, “The deposit is reflected in the landlord’s DSR or is used as housing collateral. “A method of assessing the landlord’s repayment ability by adjusting the recognition ratio (LTV) should also be introduced,” he said.

Of course, it is realistically difficult to ignore the housing ladder function of jeonse loans. Byun Se-il, a senior researcher at the Korea Research Institute for Human Settlements, said, “Jeonse loans are also part of the policy to support housing for the common people.” He added, “If jeonse loans, which are used when the housing conditions required for residential space and one’s own financing conditions, are suddenly blocked by regulations, there could be market chaos. “There is a need to relax regulations on actual demand,” he said.