[Marginalized Jeonse Tenants] ① "Soaring Loan Interest Rates and Lawsuits" ... Tenants Are Crying

Jeonse Lease Expired but Unable to Move Out
Rising Interest Rates Lead to Monthly Rent Conversion and Difficulty in Receiving Deposit

"It has been two weeks since my jeonse lease expired, but I can't move because I haven't found anyone to move in. Today, I am going to see a lawyer to file a lawsuit to get my deposit back. This all happened because the interest rates on jeonse loans have skyrocketed."

Kim Bora (36), who lives in an apartment in Dohwa-dong, Mapo-gu, Seoul, rented a jeonse house worth 500 million KRW two years ago. As the jeonse contract was about to expire this October, the landlord initially set the new jeonse price at 800 million KRW last summer. However, during this downturn period, no one even came to view the house, making the landlord anxious. Over the past four months, the jeonse price dropped from 800 million KRW to 700 million KRW, then to 600 million KRW, and finally back down to 500 million KRW.

Kim said, "People only started coming to see the house after the jeonse price dropped back to the original level, but no one has said they want to move in yet," adding, "The reason is always the same: 'They can't move out of their current place.'"

Increase in Jeonse-to-Wolse Conversions Due to Rising Interest Rates

What caused the jeonse market to become so complicated? One major reason is that the interest rates on jeonse loans have risen above 7%, prompting many tenants to switch from jeonse to wolse (monthly rent). Paying about 400,000 KRW monthly rent for a 10 million KRW deposit saves much more money than paying bank interest. Tenants calculate that with wolse, they don't have to worry about interest rate hikes during the contract period.

Real estate agent Ha Jung-sik (43) said, "When a house originally rented under jeonse switches to wolse, landlords find it difficult to prepare the deposit refund for existing tenants on time," adding, "During this period of rising interest rates, tenants are stuck like dominoes unable to move, and their interest burdens are increasing."

Jeonse Loan Interest Rates Surpass Mortgage Loan Rates

Over the past two years, interest rates on jeonse loans have risen above those of mortgage loans. According to financial authorities on the 6th, the interest rates on jeonse loans from the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) soared to between 5.74% and 7.57% as of the end of last month. Compared to 2.37% to 3.84% at the end of December 2020, the rates have nearly doubled in about two years.

During the same period, the average mortgage loan interest rates at the five major banks rose from 2.43%?4.12% to 4.77%?6.17%. The increase at the upper end was 2.05 percentage points for mortgage loans and 3.73 percentage points for jeonse loans, showing a nearly 1.7 percentage point difference. This means the rise in jeonse loan rates was much steeper.

One reason banks find it difficult to lower the additional interest rates on jeonse loans compared to mortgage loans is related to guarantee fees. A banking official explained, "When banks choose Seoul Guarantee Insurance (SGI) as the guarantor for jeonse loans, the bank pays the guarantee fee," adding, "Because of this guarantee fee burden, banks cannot easily reduce the additional interest rates on jeonse loans."

Jeonse Loan Balances Continue to Increase

Meanwhile, the volume of jeonse loans continues to grow steadily. As of the end of November this year, the outstanding balance of jeonse loans at the five major banks reached 133.0647 trillion KRW, an increase of 3.3678 trillion KRW compared to the end of last year. This trend is consistent across all banks. According to KB Financial Group Management Research Institute, the outstanding balance of jeonse loans first surpassed 50 trillion KRW in 2016 and has since increased sharply. It surged to 120.8 trillion KRW in 2019, then to 154.5 trillion KRW in 2020, and 184 trillion KRW in 2021. By October this year, it reached 193.9 trillion KRW, increasing by nearly 10 trillion KRW.

Kang Min-seok, head of the real estate research team at KB Financial Group Management Research Institute, said, "Currently, there are jeonse loan support policies mainly for young people and newlyweds, but during periods of rising interest rates, financial authorities need to expand the scope of financial support for jeonse loans."