The view of the apartment complex seen from Namsan Tower in Seoul. /Courtesy of News1

Mr. Kim (45), who won the apartment application in Gangnam, Seoul, is facing a dilemma ahead of moving in November. He intended to bring in a tenant to receive a key money deposit to pay the remaining balance, but plans to secure funds were disrupted as the 'conditioned jeonse loan' was halted. It is said that mortgage loans are limited to a maximum of 600 million won, but he now needs at least 400 million won more. Mr. Kim expressed his concerns in a real estate community and learned that he could borrow money through online investment-linked financial services (P2P).

After the government's announcement of household loan regulations on June 27, forecasts suggest that loan demand will shift to the P2P industry. P2P loans are outside the financial authorities' lending regulations, falling into a 'blind spot.' P2P companies are actively attracting customers, promoting that 'loans can be up to 85% of the loan-to-value ratio (LTV)' and that they 'are not subject to the total debt service ratio (DSR) regulations.'

According to the financial sector on the 1st, looking at online communities related to real estate, posts introducing P2P loans in response to urgent loan inquiries are increasing. The main content is that with the restriction of the 'maximum 600 million won in housing loans,' one can receive several hundred million won through P2P loans when funds are insufficient. It included statements that 'P2P loans are not subject to any lending regulations such as LTV or DSR' and that 'collateralized loans for ownership dwellings and remaining payments for sales are all possible.'

P2P loans refer to financial transactions that connect borrowers and investors directly through an online platform, lending to individuals or corporations. Since it does not go through a financial company, it is naturally unrelated to lending regulations. Currently, when borrowing against dwellings in the metropolitan area from banks, a DSR of 40% and an LTV of 50% are applied. Consequently, those who receive loans from banks and second financial sectors but find themselves short on remaining funds primarily seek P2P companies. P2P companies are subject to the 'Act on the Promotion of Online Investment-linked Financial Services,' and the loan limit is 'within the lesser of 7% of the loan principal balance or 7 billion won,' making regulations relatively loose.

Screenshot of the P2P company '8 Percent' 'Honest Fund' homepage

Upon visiting the actual P2P company site, it is noted that '8 percent,' which ranks third in the industry based on loan balance, advertises that real estate collateral loans are possible at a minimum annual interest rate of 6.8% with an LTV of 85%. An LTV of 85% means that when purchasing a 1 billion won apartment, one can borrow up to 850 million won. The loan limit can be checked by entering only the basic conditions, such as the name and area of the apartment; searching for 'Raemian One Bailey' in Seocho-gu, Seoul, found a maximum limit of 3.99 billion won (based on 112 square meters). After a post claimed that 'loans for remaining payments of new apartment collateral without regard to the number of owned dwellings can go up to 7 billion won,' the company revised the wording due to the ensuing controversy. Another company, 'Honest Fund,' states that a fixed interest rate of 7-10% is possible with an LTV of 80% and a maximum of 1.5 billion won.

A financial sector official noted, 'People in immediate need of money have no choice but to flock to the private lending market, including lending companies and P2P firms.' They added that 'the lending industry has suffered significantly since the reduction of the legal maximum interest rate in 2021, and relatively low-interest P2P loans are establishing themselves as an alternative.'

The concern is that there is a risk of a repeat of the bubble effect seen in 2019. When the Moon Jae-in government banned loans exceeding 1.5 billion won for dwellings, loan demand surged toward P2P companies. Subsequently, the P2P industry proposed a self-regulative plan to limit loans for the purpose of real estate transactions. A representative from a P2P company stated, 'Since the second half of last year, as regulations on household loans in the first and second financial sectors have tightened, the number of individual customers seeking P2P companies has increased, but notably, loan demand did not significantly rise after the regulatory announcement on the 27th of last month.'

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