The government announced that the housing loan regulations applied on landlords who are using bank loans (excluding internet-only banks) to return rent deposits to their current tenants will be temporarily eased for one year from July 27, 2023 until July 31, 2024. Under this scheme, landlords will be able to obtain bank loans for the difference between the previous and current jeonse price of their property. Instead of the 40 percent debt service ratio (DSR) currently in place, a 60 percent debt to income (DTI) ratio will be applied, while the rent to interest (RTI) ratio will be lowered from 1.25 to 1.5 times currently to 1.0 times.
With unexpected declines in jeonse prices recently, the measures intend to support tenants to move out on schedule by addressing the problem of a delay in collection of rent deposits or worries about the risk of not being able to receive their rent deposits.
When there is no subsequent occupant from whom the landlord can get rent deposit to pay the current tenant immediately, this program allows landlords to use bank loans up to the limit of the eased DTI and RTI ratios. In this case, the landlord will need to fill vacancy and get a subsequent tenant within one year to repay the loan.
Declining jeonse prices can cause problems as tenants experience difficulties in receiving their rent deposits back and moving to new places. Therefore, the eased lending rules being applied temporarily for one year are intended to minimize market shock.
In order to prevent a potential increase in household debt and to minimize the risk of rent deposits not being returned to subsequent tenants, the government will ensure that the landlord’s financial capacity to return deposits is thoroughly assessed and that sufficient safeguards are prepared for tenants.
The eased lending rules will be implemented through an administrative guidance (July 27). Revision to the regulation on the supervision of banking business will also be completed soon in August.
* Please refer to the attached file for details.