[Second Half Economic Policy] 'Reversed Jeonse Deposit Return Loan' Relief... DTI and Other Regulations Eased for One Year

RTI 1.00x, DTI 60% Applied Instead of DSR 40%

The government will ease loan regulations for landlords (rental business operators and individuals) regarding the return of deposit differences for one year. The RTI (Rental Income to Interest ratio) for rental business operators will be set at 1.00 times, and for individuals, instead of a DSR (Debt Service Ratio) of 40%, a DTI (Debt to Income ratio) of 60% will be applied. The DTI 60% corresponds to the level of special Bogeumjari Loan repayment loans. This measure aims to minimize reverse jeonse damage, where tenants cannot recover their jeonse deposits due to falling jeonse prices.

On the 4th, the government held a joint briefing with related ministries and announced the '2023 Second Half Economic Policy Direction,' which includes measures to strengthen risk management in the rental market.

On May 25th, the Special Act on Support for Jeonse Fraud Victims and Housing Stability was passed at the plenary session held at the National Assembly in Yeouido, Seoul. [Image source=Yonhap News]

The core content is the relaxation of loans for landlords facing deposit return deadlines or reverse jeonse situations (where the new jeonse deposit is lower than the existing deposit or the landlord cannot find a subsequent tenant) concerning the deposit difference. The implementation period is temporary for one year starting from the end of this month, exclusively for the purpose of returning jeonse deposits. All residential types for living purposes, including apartments, row houses/multi-family houses, and residential officetels, are subject to this.

First, the RTI for rental business operators will be eased to 1.00 times. RTI is the ratio of the annual rental income of a real estate rental business operator to the sum of the annual interest expenses on the rental business loan and the annual interest expenses on existing loans for the rental property. Currently, the RTI must exceed 1.25 times for housing and 1.5 times for non-housing to qualify for loans.

For individuals, a DTI of 60% will be applied instead of a DSR of 40%. DTI is a regulation that sets the mortgage loan limit based on the borrower's income. It is calculated by dividing the sum of the principal and interest of the mortgage loan and interest on other loans that must be repaid annually by the annual income. The current basic DTI regulation rates are 40% in speculative areas and speculative overheating districts, 50% in regulated areas, and 60% in other metropolitan areas.

The government will also operate financial support programs such as refinancing loans, delinquency information registration deferrals, and interest-free loans for victims of jeonse fraud. The 'Special Act on Support for Jeonse Fraud Victims and Housing Stability' (Jeonse Fraud Special Act) passed the National Assembly in May and has been in effect since last month.

Additionally, the government plans to improve the system so that real estate agents are required to verify and explain property and landlord information (such as tax payment history) when mediating rental contracts, and in the mid-to-long term, it will review rationalization of the three rental laws (Contract Renewal Request System, Jeonse and Monthly Rent Cap System, and Jeonse and Monthly Rent Reporting System).