Apartment buildings in Seoul. (Image courtesy of Yonhap)
SEOUL, June 19 (Korea Bizwire) — South Korea’s financial regulator said Thursday it will review the introduction of tighter rules on so-called jeonse loans amid rising household debts.
In a report to the State Affairs Planning Committee, the de facto transition team of the new Lee Jae Myung administration, the Financial Services Commission (FSC) said it will look at ways of applying tightened curbs on loans for “jeonse.”
Jeonse refers to a unique Korean system in which renters give landlords a large returnable deposit instead of paying monthly rent.
The FSC said it will review applying debt-to-service (DSR) ratio on jeonse loans.
The FSC introduced the DSR ratio in February 2024. It measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, serving as a ceiling on aggregate lending.
Earlier, the FSC said tighter DSR rules will be applied to virtually all kinds of household debts, and the stress interest rate will be raised to 1.5 percent from the current 0.75 percent on loans extended in the greater Seoul area. The stress interest rate for household loans extended outside of the capital area will remain unchanged at 0.75 percent.
Jeonse loans, along with policy loans for newlyweds and the underprivileged, are currently excluded from the regulations.
The latest move by the financial regulator comes as household loans extended by banks rose by 5.6 trillion won (US$4.05 billion) in May, the largest on-month increase in eight months, largely driven by an increase in housing transactions.
Home-backed loans rose by 4.2 trillion won in May from the previous month, marking an acceleration from a 3.7 trillion-won increase logged in April.
(Yonhap)
