[Marginalized Jeonse Tenants] ② "Reverse Discrimination"... Expand Policy Finance Coverage and Strengthen Tenant Credit Guarantees

Policies like Ansim Conversion Loans are difficult to apply to Jeonse tenants
"Include Jeonse loans in refinancing platforms to induce competition among banks"
"Credit enhancement for tenants through guarantee institutions can lower loan interest rates"

[Asia Economy Reporters Sim Nayoung, Lee Minwoo, Song Seungseop] Kim Younghwan (38), an office worker living in Dongtan, Gyeonggi Province, borrowed 300 million KRW last August through a jeonse deposit loan at an annual interest rate of 3.44%. At that time, the monthly interest payment was about 860,000 KRW. However, as the base interest rate sharply rose from the end of last year, his anxiety gradually increased. Every six months, when the interest rate adjustment period came around, the rate rose by 1% without fail. Before he knew it, the loan interest rate soared to the mid-5% range, and the monthly interest payment approached 1.4 million KRW.

Kim said, "There are many talks about mortgage loan support like the Anshim Conversion Loan, but I can't find any news about support for jeonse deposit loans, and only the interest rates are rising." He added, "The interest burden has increased, so I'm considering talking to the landlord to lower the deposit, or terminating the contract and moving to a cheaper jeonse house even if I have to bear brokerage and moving costs."

It's Hard Enough Not Owning a Home... Jeonse Tenants Are Left Out

The biggest complaint among jeonse tenants is being excluded from policy finance. Since the rise in interest rates, the policies announced by the Financial Services Commission have focused only on homebuyers, including those who borrowed to the limit. The Anshim Conversion Loan is a representative example, which converts the variable interest rates of those who have already bought homes into fixed rates around 4%. Jeonse tenants voice that "it's hard enough not owning a home, but we are also excluded from loan interest rate support."

The financial authorities say that policies like the Anshim Conversion Loan are difficult to apply to jeonse tenants. A Financial Services Commission official explained, "Jeonse deposit loans have no collateral and short loan terms. Because of this, it is difficult to issue mortgage-backed securities (MBS) by pooling mortgage loans with 20-30 year maturities, and without issuing bonds, there is no proper way to secure policy funds."

Authorities: "Expanding the Scope of Policy Finance Is the Way"... Political Circles Also Starting to Take Interest

Ultimately, the authorities say that a realistic approach is to expand the scope of policy finance products like the Buffer Jeonse Deposit Loan, which targets vulnerable groups. Currently, the Buffer Loan is limited to household heads without homes whose combined annual income is below 50 million KRW and net assets are below 325 million KRW, offering interest rates of 1.8-2.4%. It supports up to 120 million KRW in the metropolitan area and 80 million KRW outside the metropolitan area. Judging by the eligibility criteria, it applies only in very limited cases, and the number of financial products is also small. The core idea is to relax these conditions somewhat to meet the demand for jeonse deposit support. Of course, this is possible only on the premise that the National Assembly secures the budget.

The political circles have also begun to show interest in relatively neglected jeonse tenants. A National Assembly official from the Political Affairs Committee said, "Rather than government support, it is important to encourage banks to compete on jeonse deposit loan interest rates." He added, "Jeonse deposit loans should be included in the refinancing loan platform launching in June next year so that banks can voluntarily lower their rates." There are also mentions of financial authorities encouraging banks by offering incentives to launch special jeonse deposit loan products or strengthening guarantees for jeonse deposit loans to lower bank loan interest rates.

Interest Rates Can Be Lowered by Strengthening Tenant Credit Through Jeonse Loan Guarantee Institutions

Professor Seo Jiyong of the Department of Business Administration at Sangmyung University also suggested, "Since jeonse loans have no collateral, tenants with low credit ratings are naturally subject to high interest rates. If the government provides additional guarantee fees to jeonse loan guarantee institutions (Housing and Urban Guarantee Corporation, SGI Seoul Guarantee Insurance, Korea Housing Finance Corporation), it will strengthen tenants' credit, which can realistically lower bank loan interest rates."

He also proposed a plan to support fixed interest rates only for tenants who extend their jeonse contract period. Professor Seo said, "If there are jeonse tenants who want to switch from variable to fixed interest rates, banks prefer longer loan terms. One policy option is to support only those who extend their jeonse contract for an additional two years after the initial two-year period. Four years is a feasible period for applying fixed interest rates."

There were also repeated recommendations that tenant protection measures should be strengthened beyond financial policy. When the base interest rate rises, not only does the interest burden increase, but the risk that tenants cannot get their deposits back due to falling house prices also grows.

Professor Kim Daejong of the Department of Business Administration at Sejong University emphasized, "Support should be provided for the Jeonse Deposit Return Guarantee system targeting vulnerable groups." The Jeonse Deposit Return Guarantee is a system where the Housing and Urban Guarantee Corporation and SGI Seoul Guarantee Insurance pay the deposit to tenants on behalf of landlords who fail to return it on time, and then claim reimbursement from the landlords.

Professor Kim said, "Although it is a useful system, some low-income tenants cannot subscribe because they have to pay tens of thousands of KRW in guarantee fees, which is a financial burden. If the government supports this, it can reduce the risk related to deposits."