Education and Transfers Rarely Accepted... Only 3 Exceptions Allowed for Jeonse Loan Ban (Comprehensive)

'Proving Actual Demand' Is Difficult, Virtually No Exceptions
Only 3 Cases Recognized by Korea Housing Finance Corporation in Over 2 Months
"Strict Screening... Means Exceptions Are Equally Difficult to Obtain"

Reference image (Source=Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] It has been confirmed that there were only a total of three cases in the past two months where homeowners with properties valued over 900 million KRW received publicly guaranteed jeonse loans by recognizing reasons such as children's education. This means that there were virtually no exceptions to the stringent regulations blocking jeonse loans for owners of high-priced homes aimed at curbing 'gap investment.'

According to financial authorities and the financial sector on the 17th, since the enforcement of the ban on jeonse loan guarantees by the Korea Housing Finance Corporation (KHFC) and the Housing and Urban Guarantee Corporation (HUG) for homeowners with properties exceeding 900 million KRW on November 11 last year, only three people have received jeonse loans under the 'exception clause.' All three cases were with KHFC, and there have been no cases recognized by HUG yet.

A financial sector official said, "This is interpreted as a result of strict qualification screening in line with the government's regulatory intent," adding, "It means that it is very difficult to be recognized as an exception."

When implementing the regulation, the government left room for loans by recognizing some reasons for actual residence as exceptions. These include children's education, job transfers or changes such as relocation, medical treatment, and parental care. Moving between districts within Seoul or metropolitan cities does not qualify.

Based on these circumstances, to receive a guaranteed jeonse loan, one must first submit supporting documents such as employment-related certificates that can prove actual work situations and duration, children's enrollment certificates or acceptance letters, and medical diagnosis or opinion letters for verification.

Additionally, the borrower must prove that household members actually reside in both the owned home and the jeonse residence through resident registration documents, thereby demonstrating that they are 'actual demanders.' Even if evidence was provided during the loan process, if it is later found that the requirements are not met, the loan may be recalled.

The Financial Services Commission announced an additional regulation yesterday that applies the jeonse loan restrictions, previously applied to public guarantee institutions such as KHFC and HUG, to the private SGI Seoul Guarantee (SGI) as well. This will take effect from the 20th. As a result, all channels for guaranteed jeonse loans for owners of high-priced homes exceeding 900 million KRW have been blocked. The purpose is to more strictly prevent gap investments where houses are purchased with jeonse for speculative purposes.

With the implementation of the additional regulation, more people may try to use the exception clause, and the number of recognized exceptions may also increase. Previously, even if it cost a bit more, one could circumvent the regulation by using SGI, but that is no longer possible.

A financial authority official said, "Since very stringent evidence and screening principles will continue to be applied, the possibility of a significant increase in exception cases is low."

The financial authorities plan to form a joint inspection team with guarantee institutions to visit branches of major banks from the time the additional regulation takes effect to check the application status of the regulation. They also plan to prevent evasion or circumvention of the jeonse loan guarantee restriction regulation through individual guidance to banks and others.

At the same time, they will inspect the status of non-guaranteed jeonse loans by financial company units to ensure that loans do not increase after the regulation is implemented. If necessary, they will analyze detailed handling records and, if it is judged that they are being used as a means to evade jeonse loan regulations, they plan to take additional measures such as restricting public guarantee supply to the relevant financial companies.