Jeonse Loan Interest Rates Suddenly Rise to Mid-4% Range... Jumped 1%P in One Month

Banks Abolish Preferential Interest Rates to Curb Excess Demand
Possibility of Surpassing 5% if Base Rate Rises

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] The interest rates on jeonse (long-term lease) loans from major commercial banks have surged by 1 percentage point in just one month, reaching the mid-4% range annually. This is due to the financial authorities' pressure on total household loan volume regulations, prompting banks to apply stricter standards such as abolishing preferential interest rates to curb speculative demand. Especially with the Bank of Korea's base rate hike this month becoming a foregone conclusion, analysts say it is only a matter of time before the rate surpasses 5%. Since jeonse loans were excluded from additional household debt measures, there is a high possibility that purchase demand will shift to the jeonse market, raising concerns that borrowers' interest burdens will further increase.

According to the financial sector on the 1st, the upper limit of jeonse loan interest rates at major commercial banks (KB Kookmin, Shinhan, Hana) exceeded 4% by the end of last month. KB Kookmin Bank recorded an annual rate of 3.36?4.36%, Shinhan Bank 3.11?4.01%, and Hana Bank 3.19?4.49%.

Since the prolonged low-interest rate environment following COVID-19, jeonse loan interest rates had been maintained in the 2% range annually. Even after the base rate was raised once this year, the upper limit of loan interest rates remained only in the mid-3% range annually.

However, the situation rapidly changed in the second half of this year as jeonse loans were identified as the main cause of the surge in household loans. To respond to total household loan volume regulations, banks raised preferential interest rates or increased additional interest rates, causing the 2% range interest rates to completely disappear. KB Kookmin Bank reduced its preferential interest rate by 0.15 percentage points in September, and Shinhan Bank raised its additional interest rate by 0.2 percentage points in the same month.

It is widely expected that jeonse loan interest rates will surpass 5% within this year. This is because the base rate hike is scheduled for this month, and banks are intensifying their tightening of jeonse loans. From this month, banks will limit loan amounts upon renewal of jeonse contracts to within the range of the increased jeonse price. Additionally, for one-homeowners, non-face-to-face jeonse loan applications will be blocked, and a regulation requiring thorough screening directly at bank counters will be implemented.