Will High-Value Jeonse Loans Be Blocked?... Controversy Over SGI Seoul Guarantee's Review of 'Guarantee Restrictions'

Concerns Over Impact on Tenants in Seoul Gangnam Area

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] SGI Seoul Guarantee Insurance is considering suspending loan guarantees for high-priced jeonse in line with financial authorities' household debt management. As a result, some in the market are criticizing this move as "kicking away the ladder."

According to financial authorities and the insurance industry on the 7th, SGI Seoul Guarantee Insurance is reviewing a plan to stop providing guarantees for high-priced jeonse after the launch of the "Household Debt Management Task Force" formed by the Financial Services Commission earlier this month.

Unlike the Korea Housing Finance Corporation (KHFC) and the Housing and Urban Guarantee Corporation (HUG), which provide guarantees for jeonse loans but set a ceiling on the deposit amount (5 billion KRW in the metropolitan area), SGI Seoul Guarantee Insurance has no limit, allowing guarantees for high-priced jeonse loans.

SGI Seoul Guarantee Insurance has not disclosed the review schedule or the threshold amount, but a deposit of 900 million KRW is strongly mentioned as the standard for "high-priced jeonse." This is calculated by applying a 60% jeonse rate to the housing price limit of 1.5 billion KRW, where mortgage loans are restricted, and the financial authorities once considered this standard.

If SGI Seoul Guarantee Insurance suspends guarantees for jeonse deposits exceeding 900 million KRW, many apartments in the Gangnam area of Seoul will be unable to receive jeonse loan guarantees from guarantee institutions, which are prerequisites for jeonse loans. The average jeonse price in Seoul is already around 657.2 million KRW.

According to financial authorities, there are about 300 jeonse loan cases per month for jeonse homes with deposits exceeding 900 million KRW. Assuming tenants borrow up to the loan limit, up to 1.8 trillion KRW could be loaned annually. The outstanding guarantee balance of SGI Seoul Guarantee Insurance for jeonse deposits over 900 million KRW is known to be about 1 trillion KRW.

Tenants express dissatisfaction, saying they have had to bear the full burden of soaring jeonse prices due to the government's housing supply policies, the "Lease 3 Acts," and changes in real estate taxation. Even if they try to secure funds through other loans despite higher interest rates, mortgage loans and credit loans will be subject to the debt service ratio (DSR) regulation on a borrower basis from January next year when the total loan amount exceeds 200 million KRW (100 million KRW from July), making it impossible for anyone but high-income earners to obtain loans worth several hundred million KRW.