A Manuscript of Predominant Growth Trajectories of Housing Loan

In this sea like vast and deep financial market, home loans are a small yet significant part, which is the driving force of growth of bank portfolios in the current fiscal year showcasing 15% upsurge. According to the report of Mordor Intelligence, the Home Loan market is valued at $300 billion and it is expected anticipated to grow with a CAGR of 22.5%. The pandemic covid-19 has casted a significant effect on the home loan market in India, before that, it was growing with a momentum.

The driving factors of the home loan industry are the increased rate of urbanization, rising disposable incomes and few government initiatives like Pradhan Mantri Awas Yojana and Pradhan Mantri Jan Dhan Yojana, which have contributed tremendously towards the propelling growth. Another important factor of home loan is the interest rate which varies from banks to banks, locations to locations, lender, loan amount, loan tenure, and the borrower's credit worthiness. The interest rate matters a lot because a slight deviation can affect the overall growth of the home loans. 

During the third quarter of FY24 major players in the banking industry consists of public sector and private sector banks, few major banks have witnessed a remarkable growth. According to the report of Economic Times, private entity ICICI Bank and public sector bank, Bank of Baroda, anticipated a rise of nearly 16% and on the other hand, Punjab National Bank and Kotak Mahindra Bank saw 15% growth in their home loan report. The State Bank of India which is one of the largest lenders of home loans witnessed 13.2% growth during the same period.

Though the younger generation is more inclined to private sector banks over the public sector banks, but according to the market report, both are offering quite commendable rates depending on the Cibil scores. The third quarter saw a sharp growth of property purchase and likewise the demand of suitable home loans are floating well and it reaches to its climax before or during festivals. Encashing this major thrash of real estate, the developers tend to launch new residential projects and try to grab the attention of homebuyers.

State of Home Loans in major cities in India

Buying a peaceful shelter is everyone’s dream for sure, and report says, lion’s share of salaried population tend to invest on the properties in the major or Tier I or II cities of India such as Mumbai, Pune, Bengaluru, Delhi-NCR, Kolkata, Hyderabad, and Chennai. Before swaying away by your dreams and taking whimsical decisions, you need to study and observe the home loan industry and the minor to major strategies and technicalities to be on the safer side.

According to Pramod Kathuria, the Founder & CEO of Easiloan, the top five things you need to know about home loans are:

1. Eligibility: Assess your income, credit score, and down payment capacity.
2. Interest Rate: Compare rates and choose fixed or floating based on your risk appetite.
3. Loan Terms: Understand tenure, prepayment penalties, and processing fees.
4. EMI Affordability: Ensure EMIs are within 30% of your gross income.
5. Hidden Costs: Factor in stamp duty, registration charges, and insurance.

He also suggested that repo rate has the most significant impact on home loan which is directly calculated, observed and looked after by the central bank of India, RBI. The repo rate is the interest rate at which RBI lends money to the banks in exchange of collaterals. The lending bank should pay the borrowed amount within the stipulated time frame. So, if the Reserve Bank shrinks the repo rate, it will further lessen the interest rate which the bank puts on home loans.

The current rate of interest in home loans stands at 8.40%-11.00% approximately and in the private sector the rate varies from 8.75% -15% onwards, depending on the loan amount, and Cibil score of the candidate.

According to the Cibil data, the loan delinquencies deteriorated in credit cards and personal loan segments, while it improved in all other categories. For the salaried segments of the society, home loans are the best way to enjoy the tax benefits.

With the advent of technologies, the growth of affordable housing has spread to Tier- II & III cities besides the metro cities of India. Currently, the report indicates that the preeminent developers and builders are eyeing on such cities where land and construction rate is quite lower and affordable than metro cities.

Even if a person is capable of buying a home with his own money, then also we should not overlook the advantages of home loans as a saving instrument. According to the industry, the long term average return in investing in a home is 20% per annum and average cost of borrowing funds in the market is about 7% per annum.

Overall the home sector has seen a total 9% increase in lending as compared to previous years. The volume of low value home loans upto Rs.35 lakhs which constitutes 76% of the originations, witnessed a fall of 4%. On the contrary, the high valued home loans upto Rs.75 lakhs and above which constitutes 7% of the home loan segment, witnessed 23% year-on-year growth.

According to Rajiv Kumar Gupta, President -PB Fintech Ltd, commented, "In India’s financial markets, the home loan industry is a crucial contributor to economic growth. Despite the disruptive waves of the COVID-19 pandemic, the sector remains resilient, propelled by urbanisation, rising incomes, and government initiatives like the Pradhan Mantri Awas Yojana. As we embrace technological advancements and extend the reach of affordable housing to Tier-II and III cities, the home loan industry will continue to democratise access to homeownership. Beyond mere financial transactions, they serve as vehicles for wealth accumulation, with long-term returns outstripping borrowing costs. Optimising home loan mechanisms is not just an economic imperative but a societal one, ensuring equitable access to the fundamental dream of homeownership while ensuring sustainable economic development."