A banner advertising loan products is hung at a bank in downtown Seoul. Reporter Han Soo-bin
The limit of Jeonse deposit relief loan guarantee for Jeonse deposits with a debt ratio exceeding 90% will be reduced from 80% to 60% of the Jeonse deposit.
The purpose is to prevent tenants from signing a monthly rental contract in the first place by reducing the limit of the tenant’s deposit loan guarantee in the case of a house with a lot of loans as there have recently been cases in which tenants are unable to return the deposit due to ‘canned deposit’, in which the deposit is higher than the house price.
The Housing and Urban Guarantee Corporation (HUG) announced on the 17th that it has lowered the guarantee limit by 20 percentage points from the previous 80% to 60% if the debt ratio exceeds 90% of the house price from the 16th, and announced it to commercial banks. Debt ratio is the sum of senior receivables such as mortgage loans and Jeonse deposit divided by housing price.
A HUG official said, “We reduced the incentives for global contracts for canned houses and adjusted the loan guarantee limit to stabilize the jeonse market. can be applied,” he said.
If the debt ratio exceeds 90%, tenants are more likely to withdraw their deposits even if the house price drops even slightly. This may lead to deterioration of the financial soundness of HUGs that opt for deposit security loan guarantees. This is because even if HUG goes through a claim process, such as returning the deposit to the tenant and handing over the house to auction, it is unlikely that the entire amount of the deposit will be returned. The amount of subrogation paid by HUG on behalf of the lessor last year was 924.1 billion won, an 83.4% increase from 504 billion won in 2021.
Looking at HUG’s ‘Cheonse Guarantee Subscription Status by Debt Ratio Section’, the number of houses with a debt ratio exceeding 90% among the jeonse deposit guarantee subscription results increased from 17.1% in 2018 to 18.4% in 2019, 22.4% in 2020, 26.3% in 2021, and August 2022. It has increased every year to 26.1% of the standard. Guarantee fees also increased from 6.6 billion won in 2018 to 12.6 billion won in August 2022.
The guarantee operation multiple, which indicates HUG’s financial soundness, is also expected to exceed 60 times, which is the legally guaranteed range, by 2024, raising concerns about discontinuing the subscription to the ‘jeonse deposit return guarantee’. HUG’s guarantee multiple rose from 45.6 as of December 2019 to 47.4 in 2020, 49.2 in 2021, and 54.4 in 2021. The guarantee multiple at the end of 2023 is expected to be 59.7.
Park Sang-hyeok, a member of the Land, Infrastructure and Transport Committee of the National Assembly, recently proposed an amendment to the Housing and Urban Fund Act to expand the total limit of HUG guarantees from 60 to 70 times. Rep. Park said, “In the long term, HUG’s financial soundness should be considered, but it is necessary to come up with a preemptive and immediate alternative to solve the urgent problem of the corporation’s limit on the total amount of guarantee.”
