Seoul, South Korea – The Housing & Urban Guarantee Corporation (HUG) announced today a significant overhaul of its rent deposit guarantee premium system, a move aimed at aligning premiums with the actual risk of default. Effective March 31, the new system will introduce a tiered structure, resulting in both reductions and increases in premiums depending on various factors.

Previously, the premium rate for rent deposit guarantees ranged from 0.115% to 0.154% annually, regardless of the specific circumstances. The revised system will now see rates fluctuate between 0.097% and 0.211%, with premiums adjusted based on the deposit amount, property type, and the borrower's debt-to-income ratio.

Key Changes in the New System:

Tiered Premium Structure: The deposit amount will be categorized into four tiers: 100 million won or less, 100 million won to 200 million won, 200 million won to 500 million won, and 500 million won to 700 million won.
Risk-Based Premiums: Higher premiums will be charged for properties with larger deposits, higher loan-to-value ratios, or located in areas with a higher risk of default. Conversely, lower premiums will be applied to properties with smaller deposits, lower loan-to-value ratios, and in areas with a lower risk of default.
Eligibility for Discounts: To be eligible for premium discounts, borrowers must now be homeowners. Previously, low-income households, newlyweds, and families with multiple children could qualify for discounts even if they owned a home.
Increased Municipal Support: Local governments will be allowed to provide up to 400,000 won in subsidies to low-income renters to offset the increased premiums.
Rationale Behind the Changes

HUG cited the need to address the rising number of defaults on rent deposit guarantees as the primary reason for the overhaul. By aligning premiums with the actual risk of default, the corporation aims to ensure the sustainability of the guarantee program while providing fair and equitable treatment to all borrowers.

Impact on Renters

The new system is expected to have a varied impact on renters. While some will see a reduction in their premiums, others, particularly those with large deposits or properties in high-risk areas, may face significant increases.

Industry Reactions

Real estate experts have expressed mixed reactions to the changes. Some applaud HUG's efforts to make the premium system more risk-sensitive, while others worry that the increased premiums could make it more difficult for renters to afford housing.

Looking Ahead

The implementation of the new rent deposit guarantee premium system is expected to have far-reaching implications for the South Korean housing market. As the market continues to evolve, it remains to be seen how effectively the new system will address the challenges posed by rising housing costs and increasing financial risks.