"Even the Homeless Feel Sorrow... Jeonse Interest Rates Higher Than Mortgage Loans"

Loan Focused on Actual Users
But Interest Rates Higher Than Mortgage Loans
Market Banks' Jeonse Loan Interest Rates Exceed 6%
Possibility of Rising Close to 7% in August

On the 17th, a view of apartments from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. The Korea Real Estate Board announced that the actual transaction price index for apartment sales in Seoul in March was 175.1, up 1.4 points from the previous month (173.7). This marks the first time in five months since recording 180.0 in October last year that the Seoul apartment sales actual transaction price index has turned upward again. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Sim Nayoung] The interest rates on jeonse loan funds, centered on actual users, have exceeded 6%, causing the burden on ordinary citizens to snowball. Jeonse deposits in Seoul and the metropolitan area have risen by hundreds of millions of won over the past two years, creating an urgent need to prepare the deposits, and with interest rates also rising, it has added fuel to the fire.

According to the financial sector on the 31st, the interest rates on jeonse loan funds from the five major banks (KB Kookmin, Shinhan, Hana, Woori, Nonghyup) range from 3.87% to 6.22% (as of the 28th). This is an increase of 2.35 percentage points (p) at the upper end compared to the end of July last year (2.46% to 3.87%).

The upper limit of the five major banks' jeonse loan interest rates is higher than the upper limit of fixed-rate mortgage loans (6.02%) and only 0.03 percentage points lower than the upper limit of variable-rate mortgage loans (6.25%). Jeonse loans are provided with guarantees up to 90% from Seoul Guarantee Insurance, Korea Housing Finance Corporation, and Housing and Urban Guarantee Corporation. Because of this, it is generally common for jeonse loan interest rates to be lower than regular mortgage loan interest rates.

The government announced the "Housing Market Stabilization Plan," which includes strengthening the comprehensive real estate tax on high-priced housing and regulating mortgage loans for apartments priced over 1.5 billion won in speculative areas and speculative overheating districts. On the 17th, a price list was posted at a real estate agency office in Songpa-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

However, recently, the COFIX (Cost of Funds Index), which is the benchmark interest rate for jeonse loans, has jumped sharply, pushing up the interest rates. The COFIX rate announced on the 16th for June was 2.38%, up 0.4 percentage points from the previous month. A representative from a commercial bank said, "Jeonse loan interest rates maintained the 3-5% range throughout the first half of this year but collapsed this month due to the impact of COFIX," adding, "When the July COFIX, reflecting the Bank of Korea's big step (a sudden 0.5 percentage point increase in the base rate on the 13th of this month), is announced in August, there is a possibility that jeonse loan interest rates will surge again."

The Financial Services Commission has announced plans to expand low-interest jeonse loans through the Korea Housing Finance Corporation, but the financial sector predicts that the effect will be limited in Seoul and the metropolitan area. "Korea Housing Finance Corporation loans are only available for jeonse deposits under 700 million won, so the applicable areas in Seoul are limited, and there is no interest rate premium compared to Seoul Guarantee Insurance, plus tens of thousands of won in guarantee fees must be paid," they said. "Although the loan limit from Korea Housing Finance Corporation is currently 222 million won and will increase to 440 million won from October, Seoul Guarantee Insurance provides loans up to 500 million won, so reducing the burden of jeonse living through low-interest loans from Korea Housing Finance Corporation has its limits."

Although commercial banks introduced interest rate reduction policies at the request of the Financial Services Commission, the tendency to focus only on mortgage loans was also one of the reasons why jeonse loan interest rates have risen further. While household loans from the five major banks have continuously decreased this year, jeonse loans have shown an increasing trend, rising by about 2 trillion won from January to July (as of the 20th). From the banks' perspective, to earn even a little more interest income, it is better to apply interest rate cuts to mortgage loans rather than jeonse loans.