The proportion of monthly rent transactions in Seoul has surpassed 50%, as both jeonse prices and loan rates rise, increasing the financial burden on tenants. With jeonse properties becoming harder to find and the costs of securing deposits through loans rising, concerns are growing that more tenants may be forced into monthly rentals. As rental costs increase, the threshold for homeownership is becoming more challenging for those without homes.
According to the financial sector on October 20, the COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate loans, rose to 3.43% in September based on new transactions, up from 3.18% the previous month. This marks the largest increase in nearly four years. Consequently, the variable-rate mortgage rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have climbed to between 4.68% and 6.48%.
The rise in mortgage rates is exacerbating the financial burden for those looking to transition from jeonse to home purchases. With jeonse prices increasing, the challenge of securing deposits is making it difficult for tenants to maintain their jeonse or pursue homeownership.
According to KB Real Estate's housing price trend survey, the average jeonse price for apartments in Seoul reached 722.53 million won in September, a 10.43% increase compared to the same period last year. Even if tenants wish to maintain similar living conditions, they face the need to secure larger deposits during lease renewals or relocations.
The combination of rising jeonse prices and loan burdens is narrowing tenants' housing options. If they cover the increased deposit with a loan, their interest burden grows, and if they lack sufficient funds, they may have to switch to monthly rent. Maintaining jeonse requires additional deposits and loan interest, while choosing monthly rent means managing monthly rental payments, complicating the ability to save for homeownership.
Even those seeking to purchase homes with mortgages face increased principal and interest payments during a period of rising rates. For instance, a borrower taking out 500 million won over 40 years at a variable rate of 4.2% would need to pay approximately 2.15 million won monthly under a standard repayment plan. If rates rise by 0.25 percentage points, the monthly payment would increase to about 2.23 million won, adding roughly 80,000 won per month, or 960,000 won annually, to their repayment burden.
Future interest rate trends also pose a concern. Even if the Bank of Korea decides to maintain the current base rate at its monetary policy meeting on October 22, there are expectations of potential increases thereafter. This is due to sustained high international oil prices and rising wages and bonuses among major semiconductor companies, which could prolong inflationary pressures. If market interest rates rise, leading to higher bank loan rates, the burden of securing funds for home purchases could increase further. Tenants utilizing jeonse loans will also find it difficult to escape the burden of rising interest rates.
Seoji Yong, a professor at Sangmyung University’s Business Administration Department, stated, "The recent high-interest rate environment and rising funding costs are increasing the interest burden on vulnerable borrowers. As bank bond rates continue to rise, there is a possibility that loan rates will increase further, making it necessary to utilize mid-interest loans to improve household debt structures."
* This article has been translated by AI.
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