The financial authorities will lower the guarantee ratio of guarantee insurance from 100% to 90% to manage the supply scale of jeonse loans amounting to 200 trillion won. Additionally, the third phase of the stress Debt Service Ratio (DSR) measures, which further tighten limits on mortgage loans, will be implemented as scheduled in July.
On the 8th, the Financial Services Commission announced the '2025 Work Plan' containing these details. The Commission decided to unify the guarantee ratio for jeonse loans from the three major guarantee institutions?Korea Housing Finance Corporation (HF), Housing and Urban Guarantee Corporation (HUG), and Seoul Guarantee Insurance (SGI)?to 90% of the loan amount. Currently, the guarantee ratio is 90% for HF and 100% for HUG and SGI Seoul Guarantee.
The Financial Services Commission is also considering an additional reduction of the guarantee ratio limited to the Seoul metropolitan area. The financial sector anticipates that a guarantee ratio of around 80% could be applied in the metropolitan area. The financial authorities believe that jeonse loans have been excessively supplied due to a structure that effectively guarantees the entire amount. In particular, jeonse loans have supplied liquidity to landlords, facilitating gap investments, which in turn has acted as a vicious cycle driving up housing prices.
Kwon Daeyoung, Secretary General of the Financial Services Commission, explained, "Jeonse loans are a necessary system from the perspective of national housing stability, but since they have been supplied without assessing repayment ability, there have been many criticisms that the 200 trillion won in jeonse loan funds lead to speculative housing demand. Accordingly, consultations among related ministries have been held regarding the introduction of partial guarantees instead of full guarantees."
The Financial Services Commission will implement the third phase of the stress DSR, which tightens loan limits considering the annual household debt growth rate, as scheduled in July. The stress DSR is a system that calculates loan limits by applying an additional interest rate (stress rate) to the loan interest rate, reflecting future interest rate fluctuation risks. When the stress rate reflecting future interest rate volatility risk is applied, the loan limit decreases.
Since September last year, the financial authorities have applied a stress rate of 1.2 percentage points in the metropolitan area and 0.75 percentage points in non-metropolitan areas to mortgage loans and credit loans in the banking sector and mortgage loans in the secondary financial sector as part of the second phase measures. When the third phase is implemented, a 1.5 percentage point stress rate will be uniformly applied to mortgage loans, credit loans, and other loans in both the banking and secondary financial sectors.
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