Written by Amit Agarwal
Much 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 discounts for builders. The idea is to invest in a house, either to live there or to leverage it as an asset that could generate an additional source of income, mainly for use in times of crisis like this.
This decision can help people lead financially stable lives, now and beyond. The Indian mortgage market is expected to grow at a CAGR of around 22% in 2021-2026.
While COVID-19 has sparked disruption around the world, it has made it possible for people to view home buying as a serious investment. Amid the uncertainties surrounding the current market situation, people have come to understand the security of owning a home. Several factors are reshaping the home loan market, such as cheaper home loans and the RBI moratorium.
Millennials are the emerging demographic that are more open to taking loans, and banks are launching avenues online to disburse loans faster.
Given the central role that real estate plays in the recovery of the Indian economy, industry and government have been working on new developments in the mortgage segment since the outbreak of the pandemic.
Let’s take a look at them and their impact in the near future:
Repo rate reduced by Reserve Bank of India
The recent cut in repo rates by the RBI has brought mortgage interest rates to a record low of 7%. This is great news for aspiring homebuyers who have the headroom to buy their first home and take advantage of the lower EMI repayment, which saves money.
However, only those with a credit score above 750-800 are eligible for home loans at such low interest rates. So, before going ahead, applicants should check their scores and then make the decision.
Home loans at a historically low level
In order to make buying a home more lucrative, many banks have offered to reduce interest on mortgage loans. Customers can benefit from a concession on interest rates. This is an extension to the festive offers announced by many banks and credit institutions.
Bank preference for building a home loan book during COVID times
Among all types of loans – secured and unsecured. Banks have a preference for secured loans during the Covid era. Historically, mortgage arrears (secured loans) have been the lowest. Therefore, in times of crisis like the current one, when uncertainty looms, banks are offering the best rates for building a mortgage portfolio, instead of focusing on unsecured loan books that would include loans. personal and credit cards. Home loans are a safer bet from a bank point of view.
This, combined with the interest from buyers, which has been at an all time high in recent years, makes it a good environment to buy a home. Customers think they can get a better deal since prices are moderate, home loans are at their lowest, banks are more willing, potentially helping buyers save through low interest on bank accounts .
Reducing stamp duty really helps us make a lot of deals.
RBI’s relaxed loan to value
RBI rationalized the risk weights and linked them to loan-to-value (LTV) ratios for all new home loans sanctioned through March 31, 2022. This would make buying a home attractive to borrowers and lenders. The loan to value ratio (LTV) refers to the proportion of the property’s value that a lender can borrow for a purchase.
Linking mortgage risk weighting to LTV for all new mortgage loans is a good move and will benefit the real estate industry. This will give the industry a boost as it should lead to increased credit flow. The new measure should provide relief to large borrowers, say above Rs 75 lakh, whose current share is around 12-15% of the total home loan portfolio, where the risk weight is higher.
Moratorium on loans and restructuring
A loan moratorium was put in place to temporarily ease loan repayments to borrowers affected by the pandemic. However, with loan restructuring, borrowers have two options: either delay repayment of interest and principal, or repay the loans on easy terms.
While the moratorium was like instant relief from repayments for a few months, restructuring is another way to minimize the burden of heavy IMEs on borrowers’ shoulders and help the industry recover from the liquidity crunch. Discussions regarding the restructuring of interests during the moratorium period are also ongoing.
Banks launch digital customer integration
As banks saw the growing demand for home loans from millennials, they quickly capitalized on this new opportunity by launching online avenues to disburse loans faster. Millennials with higher disposable incomes appreciate fast services that take less time. In light of this growing traction, various banks and financial institutions have implemented digital initiatives to help customers get loans faster and make their home buying decisions.
It can be said with certainty that there is no better time than now to buy your dream home or invest in a property from a security standpoint in the presence of a myriad of lucrative offers in the world. the real estate sector. All of these mortgage lending trends are acting as growth engines for the Indian real estate industry to help them recover faster and come out stronger.
Hopefully the market will prosper in the coming months, with more and more people turning to banks and financial institutions for home loans at historically low interest rates, and to help the economy bounce back. the current crisis.
Amit Agarwal is co-founder and CEO of NoBroker.com