Authored by Amit Agarwal
A large part of the millennial population realized the value of homeownership during the pandemic, and many others saw it as a good investment opportunity with price stability and great builder discounts. The idea is to invest in a home, either for living or to leverage it as an asset that could generate an additional source of income, mainly to be used in crisis hours like this.
This decision can help people lead a financially-stable life, now and beyond. India's home loan market is slated to grow at a CAGR of around 22 percent during 2021-26.
While COVID-19 triggered worldwide disruptions, it enabled people to take home buying as a serious investment. Amidst the uncertainties surrounding the current market situation, people have understood the security of owning a house. Several factors are reshaping the home loan market such as cheaper home loans and RBI moratorium.
Millennials are the emerging demography who are more open to taking loans, and banks launching online avenues to disburse loans faster.
Given the pivotal role that real estate plays in the recovery of the Indian economy, the industry and government are working towards new developments in the home loan segment since the pandemic broke.
Let’s look at them and the impact they would have in near future: Repo rate slashed by the Reserve Bank of India
The recent repo rate cut by the RBI has brought home loan interest to a record-low 7 percent. It's excellent news for aspiring home buyers with the necessary margin money to go for their first homes and enjoy repaying lower EMIs that allows room for savings.
However, only those with credit scores over 750-800 are eligible to get home loans at such low-interest rates. So, before moving ahead, applicants should check out their scores and then take the decision.
Home-loans at an all-time low
In order to make homebuying more lucrative, many banks have come forward to reduce interest on home-loans. Customers can avail of concession on interest rates. This is an extension to the festive offers announced by many banks and lending institutions.
Banks preference for building home loan book in times of COVID
Among all types of loans - secured and unsecured. Banks have a preference for secured loans in times of Covid. Historically, the delinquencies in the Home loans (secured loans) have been the lowest. Therefore, in times of crisis such as the current one, as uncertainty looms, banks are offering the best rates to build a home loan book, instead of focusing on unsecured loan books that would include personal loans and credit cards. Home-loans are a safer bet from the banks’ perspective.
This coupled with buyers' interest which is at an all-time high for the past couple of years makes it a conducive environment for home buying activity. Customers believe that they can avail a better deal since prices are subdued, home loans are at their lowest, banks are most willing for it, eventually helping buyers save through low interest in bank accounts.
Slashing of stamp duty is genuinely helping us close a lot of deals.
RBI’s relaxed loan to value
RBI has rationalized the risk weights and link them to loan-to-value (LTV) ratios for all new home loans sanctioned up to March 31, 2022. This would make home-buying attractive for both borrowers as well as lenders. The loan-to-value (LTV) ratio refers to the proportion of the property value that a lender can borrow through for a purchase.
The linking of the risk weight of home loans to LTV for all new housing loans is a good move and will benefit the real estate sector. It will give a fillip to the industry, as it is expected to result in higher credit flow. The new measure is expected to provide relief to big-ticket borrowers, say above Rs 75 lakh, the present share of which is around 12-15 percent of the total housing loan portfolio, where the risk weight is higher.
Loan moratorium and restructuring
Loan moratorium was introduced as a temporary relief from loan repayments to borrowers who were adversely affected by the pandemic. However, with loan restructuring, borrowers have two options: either delay repayment of interest and principal amount or repay loans at easy terms and conditions.
While the moratorium was like an instant relief from repayments for a few months, restructuring is another way of minimizing the burden of hefty EMIs from the shoulder of borrowers and helping the industry revive from the liquidity crunch. Discussions regarding the restructuring of interest on the moratorium period are also underway.
Banks launching digital customer onboarding
As the banks saw increasing demand for home loans from millennials, they quickly banked on this new opportunity by launching online avenues to disburse loans faster. Millennials with higher disposable incomes appreciate prompt services that take less time. In light of this growing traction, various banks and financial institutions implemented digital initiatives to help customers secure loans faster and go ahead with their homebuying decision.
It can be safely said that there is no better time than now to buy your dream home or invest in a property from a security perspective in the presence of myriad lucrative offerings in the real estate sector. All these home loan trends are acting as growth drivers to India's real estate sector to help it recover faster and emerge stronger.
Hopefully, the market will thrive in the coming months, with more and more people approaching banks and financial institutions for home loans at record-low interest rates, and help the economy recover from the current crisis.
Amit Agarwal is Cofounder & CEO at NoBroker.com