As renters face a shortage of jeonse properties and rising prices, many are turning to home purchases, only to encounter another barrier: bank loans. By mid-September, the annual household loan capacity of banks had already been exhausted, compounded by rising mortgage rates. This situation raises concerns that first-time homebuyers may remain in their current homes or be pushed into monthly rentals due to difficulties in securing funds for home purchases.
According to the financial sector, as of September 17, the outstanding balance of household loans from KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup banks, excluding policy loans, was 652.26 trillion won. This marks an increase of 7.29 trillion won from 644.98 trillion won at the end of last year.
The five major banks agreed with financial authorities at the end of last month to raise their annual household loan growth target by approximately 2.78 trillion won to 7.11 trillion won. However, as of September 17, the increase had already surpassed the revised target by 1.76 trillion won, indicating that the additional loan capacity was exhausted in less than a month.
Banking officials anticipate that the financial authorities' stringent management of household loans will continue for the foreseeable future. Given that the revised annual target has already been exceeded, banks are likely to tighten new household loan approvals as the year progresses.
Some banks have already begun to limit the loan amounts for home purchases or manage the volume of loans through different channels, such as loan brokers and online applications. Certain branches are selectively accepting new applications by allocating household loan limits. As banks implement total volume management, cases may increase where individuals with sufficient income and collateral are unable to borrow the desired amount when needed.
The challenge is compounded by the instability in the rental market, where the supply of jeonse properties is dwindling and prices are rising. While more renters may consider purchasing homes due to the lack of jeonse options, securing a mortgage remains a significant hurdle. Consequently, many may have no choice but to stay in their current homes or opt for more expensive monthly rentals.
According to the Ministry of Land, Infrastructure and Transport, the nationwide jeonse transaction volume in July was 68,462 cases, a 22.3% decrease from the same month last year. From January to July this year, monthly rentals accounted for 68.3% of all rental transactions, up 6.5 percentage points from the same period last year. This trend reflects a shift away from jeonse due to decreasing supply and deposit burdens.
As jeonse transactions decline, banks are also reducing their jeonse loan offerings. As of September 18, the outstanding balance of jeonse loans from the five major banks was 119.58 trillion won, down 3.07 trillion won from 122.65 trillion won at the end of last year. This contrasts with last year's increase of over 8 trillion won in jeonse loan balances, indicating a shift in demand from jeonse to monthly rentals and a decrease in new jeonse contracts.
Rising interest rates are also hindering renters' ability to transition to home purchases. The average interest rate for new mortgages from the five major banks in July was 4.66%, an increase of 0.6 percentage points from a year earlier. Even for the same loan amount, the increased interest burden, along with the debt service ratio (DSR) regulations, may further reduce borrowing limits, disproportionately affecting first-time homebuyers and young people with limited cash reserves.
If the banks' lending restrictions persist, there is a risk of a vicious cycle where the rental and sales markets exacerbate each other's burdens. Renters unable to secure jeonse may attempt to enter the sales market, but without access to loans, they may remain in the rental market. This accumulated demand could drive up jeonse and monthly rental prices, further increasing the financial burden on renters.
Seoji Yong, a professor at Sangmyung University, stated, “If loans are restricted, renters are likely to shift to monthly rentals or choose smaller homes in the outskirts. The combination of jeonse shortages and financial constraints will likely raise both jeonse and monthly rental prices while dampening some demand for home purchases.”
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.