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(LEAD) Loan rules for rental of housing will be relaxed: financial regulator

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SEOUL, Oct. 14 (Yonhap) – South Korea to ease stringent loan regulations for rental housing as part of efforts to protect those who actually need to borrow as financial authorities ‘are preparing to unveil additional measures to control household debt this month, the head of the country’s financial regulator said Thursday.

In a brief meeting with reporters, Koh Seung-beom, the head of the Financial Services Commission (FSC), said checks on these loans for the “jeonse” deal will be handled “flexibly”.

“For loans taken out for jeonsees in October, November and December, the cap on total loans will be applied flexibly,” Koh said. “We will tolerate it even if the growth rate of outstanding household debt exceeds the target range if this is due to an increase in loans for jeonse.”

Under South Korea’s decades-old jeonse system, tenants pay the landlord a large lump sum deposit, known as key money, which is then returned at the end of the rental agreement, which usually lasts two years. During the term of the lease, tenants do not pay monthly rent.

Koh said the government would announce additional measures to bring household debt under control next week “at the earliest”, adding that the relaxed measures could be included.

He pledged that jeonse loans and loans for those planning to move into newly built apartments will not be suspended until the end of this year.

As of July, the FSC has applied more stringent loan calculations for mortgages, called the debt service ratio (DSR), which measures how much a borrower has to pay for principal and interest as a proportion of their annual income.

The move is part of the government’s efforts to control soaring house prices and inflation. But such moves have sparked complaints from people who actually need to borrow money to rent a house to live.

Shortly after the FSC chief’s remarks, President Moon Jae-in ordered financial authorities to closely monitor banks to ensure a steady supply of loans for rental housing in jeonse.

In 2020, household debt increased by 7.9% over one year. The regulator aims to reduce the annual increase to less than 6% this year and less than 5% next year.

Household debt, however, shows no sign of easing.

Outstanding household bank loans increased by 6.5 trillion won in one month to 1,052.7 billion won ($ 877.9 billion) at the end of September, according to the Bank of Korea (BOK).

On Tuesday, the BOK kept its key rate unchanged at 0.75% for October, but hinted at the possibility of another rate hike next month after a quarter-percentage point hike in August in the goal curb inflation and household debt.

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