Even Homeowners Who Purchased Single Homes with Jeonse Before the 12·16 Measures Face New LTV Rules on Jeonse Deposit Return Loans... Loan Limits Reduced
Financial Authorities: "LTV Has Been Applied at Loan Time Since the August 2, 2017 Measures... Unrelated to Retroactive Application Issues"
No Exceptions for Single Homeowners Who Bought Homes Relying on Previous Policies, Causing Funding Gaps
[Asia Economy Reporter Haeyoung Kwon] Financial authorities are facing controversy over the 'retroactive application' of limiting the Loan-to-Value ratio (LTV) to 20% on the portion exceeding 900 million KRW for homeowners who purchased a house with a jeonse deposit before the December 16 measures. This is a consequence of the full-scale implementation of the December 16 loan regulations, which take effect starting on the 20th. Although financial authorities maintain that LTV regulations should apply based on the rules at the time the loan is executed, those who purchased homes relying on previous policies are now facing funding gaps due to the abruptly changed regulations.
According to the financial sector on the 20th, if a property was purchased with a jeonse deposit for actual residence in a regulated area before the December 16 measures, the maximum LTV limit for future jeonse deposit return loans will be reduced from the previous '40%' to '40% for up to 900 million KRW, and 20% for the portion exceeding 900 million KRW.'
A jeonse deposit return loan is a loan taken out by the homeowner to return the jeonse deposit to the tenant upon their departure, effectively functioning as a mortgage loan. Through the December 16 measures, financial authorities changed the LTV for homes exceeding 900 million KRW in regulated areas from the previous 40% to 40% for up to 900 million KRW and 20% for the amount exceeding 900 million KRW.
The issue is that this regulation is being retroactively applied even to homeowners who signed purchase contracts before the December 16 measures.
For example, a resident in a non-school district area of Gyeonggi-do who purchased a home with a jeonse deposit in preparation to move to a school district area in Seoul or Gyeonggi-do when their child enters elementary school two years later will see their loan limit suddenly reduced. This applies to those who purchased a home at the end of November last year, before the December 16 measures, and are scheduled to move in by the end of 2021, two years later. If a 1.3 billion KRW home was purchased with a jeonse deposit, the loanable amount at the time of move-in at the end of 2021 will decrease from the original 520 million KRW (applying 40% LTV) to 440 million KRW (applying 40% LTV up to 900 million KRW and 20% beyond that) due to the retroactive loan regulation, a reduction of nearly 100 million KRW.
Parents who have taken out mortgage loans (jeonse deposit return loans), credit loans, and even mid-term retirement fund settlements?so-called 'Youngkkeun' (borrowing to the limit, even to the soul)?for their children's education are expected to suffer significant damage from this regulation.
Financial authorities plan to apply the existing 40% LTV if buyers before the December 16 measures use jeonse deposit return loans within 'three months after registration.' However, this is an exceptional case. Homeowners who purchased a house with a plan to reside in it 1-2 years later are expected to bear the full brunt of the impact.
Regarding this, a financial authority official explained, "LTV regulations follow the rules at the time of the loan, so the issue of retroactive application is irrelevant. This principle has been consistently applied since the August 2, 2017 measures, and nothing new has changed."
A financial sector official said, "Homeowners with one house are actual users, not gap speculators, but the government is recklessly trying to solve its real estate policy failures with loan regulations that do not hesitate to apply retroactively. Government policy is based on trust, but even actual users are now expressing dissatisfaction, saying they can no longer trust the government."
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