Single-Homeowners with Apartments in Seoul Metropolitan Area to Face Jeonse Loan Ban Without Residency History [8·13 Real Estate Measure]

Both New Applications and Maturity Extensions Banned from Next Year
Jeonse Loan Guarantee Ratio for Single-Homeowners Lowered by 10 Percentage Points to 70-80%

Starting next year, the government will implement a complete ban on jeonse (lump-sum deposit rental) loans for single-homeowners in the Seoul metropolitan area and regulated districts who own an apartment but have never lived in it. The move is intended to address instability in the housing market stemming from buyers using jeonse deposits as leverage to purchase a home while renting another property under a jeonse contract. Accordingly, the government will also lower the loan guarantee ratio for single-homeowners from the current 80–90% to 70–80%.

According to the 'Comprehensive Financial Measures for Real Estate Market Stabilization' announced by the Financial Services Commission on August 13, the government will expand the restrictions on jeonse loan guarantees to cover 'single-homeowners who do not reside in their own homes for speculative purposes.' At present, public guarantee institutions—including Korea Housing Finance Corporation, Korea Housing & Urban Guarantee Corporation, and SGI Seoul Guarantee—provide guarantees for jeonse loans, but restrictions applied only to multiple-homeowners and to those who acquired apartments worth more than 300 million won in speculative and overheated speculation zones. The new regulations will extend these restrictions to include single-homeowners owning non-owner-occupied apartments for speculative purposes.

The new rule applies to single-homeowners who own an apartment in the Seoul metropolitan area or regulated regions, are renting out that property, and have no history of themselves or their spouse residing there. There will be no separate restriction on the length of actual residence. The government considers arrangements where owners lease out their property while living in another rental with a jeonse loan as speculative demand. As such, not only new jeonse loans but also the renewal of existing jeonse loans will be, in principle, prohibited. Currently, about 6 trillion won worth of jeonse loans—approximately 60,000 cases—have been issued to single-homeowners who own apartments in the Seoul metropolitan area or other regulated districts. However, because residence history is often unverified, financial authorities cannot estimate exactly how many loans will be affected by the new regulation.

This measure is aimed at closing loopholes in existing loan regulations related to gap investment. Previous policies, such as those announced on June 27 and October 15 of last year, imposed stricter requirements for real estate loans and home purchase, making new gap investments nearly impossible. However, single-homeowners who had previously purchased homes with existing jeonse tenants faced no restrictions on obtaining loans while living in another property under a jeonse contract.

Nevertheless, to prevent unintended negative consequences for innocent individuals, the government will provide certain exceptions. These include: ▲ when the property is being rented to immediate family members of the owner or the owner's spouse ▲ when the owner is unable to reside due to legal or contractual reasons. For example, the exemption would cover situations where someone purchases a home with existing tenants in a land transaction permission zone or where the buyer inherits a lease contract after purchasing but is unable to move in until the tenant moves out. Additionally, ▲ cases where repayment proves difficult due to the landlord’s failure to return the jeonse deposit, or ▲ situations requiring an extension of the jeonse loan due to timing adjustments for move-out at the expiration of the lease, may also be considered for relief. Furthermore, the loan review committee at the lender's financial institution may permit new loans or renewals if it determines that non-residence was unavoidable.

Some observers have raised the possibility that, since there is no minimum requirement for the length of actual residence, some borrowers might circumvent the regulation through nominal relocation. However, the financial authorities argued that demand for regulatory arbitrage will be limited, as the maximum jeonse loan amount for single-homeowners is already capped at 200 million won.

The guarantee ratio for jeonse loans to single-homeowners will also be lowered. The current guarantee ratios are 80% for apartments in the Seoul metropolitan area and regulated districts, and 90% for other regions. These will be reduced by 10 percentage points, to 70% and 80%, respectively. As lower guarantee ratios increase the credit risk borne by financial institutions, issuing jeonse loans is expected to become even stricter. The guarantee ratio for jeonse loans to non-homeowners will remain unchanged at the current level.

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