Cheaper home loans coming your way as lenders scramble for attention

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Getting a home loan under Rs 30 lakh has gotten cheaper this week with the country's largest bank and top home financiers slashing their interest rates.

State-owned State Bank of India (SBI), which also has the largest home loan market share, is offering 8.35 percent interest to salaried borrowers on home loans up to Rs 30 lakh. For loans above Rs 30 lakh, the bank will charge 8.50 percent. It will continue to charge 8.60 percent on loans above Rs 75 lakh.

To push growth in the affordable housing loan segment, banks and non-banking financial companies (NBFCs) are looking at making interest rates more competitive to capture the potentially lucrative and untapped mass segment.

After SBI, housing finance major LIC Housing Finance launched a new home loan product ‘Griha Siddhi’ at 8.40 percent for loans up to Rs 25 lakh.

Also Watch: How Banking Regulation Act will clean up India’s bad loan mess

Under the scheme, these loans will be offered to women at 8.35 percent. The home loans are customised products offered for construction/purchase of house or flat and repairs/renovation to the existing properties.

Bajaj Finserv, which manages financial services through its lending arm Bajaj Finance, is offer home loans at a special interest rate of 8.50 percent till May 15. This will be offered instantly, where customers will be required to start paying EMIs only after three months.

Meanwhile, the largest housing finance player HDFC cut rates for new customers to 8.50 percent in February.

Other banks including Punjab National Bank, IDBI Bank and south-based Indian Overseas Bank have reduced their MCLR (marginal cost based lending rate) which determines the minimum lending rate across loans to new borrowers.

"People have started looking at property buying since January," Keki Mistry, Vice Chairman and Chief Executive Officer of HDFC told Moneycontrol recently. "Property prices have not moved much in the past few months, interest rates are at an all time low and the government's Credit Linked Subsidy Scheme to push affordable housing; so from the perspective of a person buying the house especially the first time home buyers, it cannot be a better time than this."

"One indication that financial inclusion is taking place in home loans is the shrinking loan size. The average size of the loan has dipped from Rs 4.8 lakh in 2009-10 to Rs 4.1 lakh currently," according to a study by TransUnion Cibil.

SBI is also helping borrowers to avail of an interest subsidy of Rs 2.67 lakh, if eligible, under the Pradhan Mantri Awas Yojana scheme.

Growth potential

This comes at a time when loan growth is at a multi-year low below 5 percent and lenders are pushing retail loans, especially the affordable housing loans, which has significant opportunities and are boosted by the government push.

A quarter of home loans today are for affordable housing.

The total loan amount sanctioned in the affordable housing segment (loans below Rs 10 lakh) in 2016 rose to Rs 30,407 crore, which is around 7.64 percent of total home loans of Rs 3.97 lakh crore, the TU Cibil's study said.

The growth is expected to be further higher because of incentives announced by the finance minister, which translate into small loans becoming a couple of percentage points cheaper due to a government subsidy that will be in place till December this year.

"The golden lining is that there have been low delinquency rates on affordable housing loans over the last 5 years," said Harshala Chandorkar, chief operating officer, TU Cibil. "The essence of these trends indicate a very promising growth potential for lending in this segment. Looking at the average ticket size, we can expect to witness more and more small banks and MFIs (microfinance institutions) participating in affordable housing lending in the coming years."

According to a CRISIL report, affordable housing finance companies are poised to grow at a CAGR (compounded annual growth rate) of 40 percent over the next four years, mainly on the back of the initiatives taken by government to give a boost to the sector under its housing for all by 2022 programme.

The report released this week says that the new pure-play affordable home loan players have seen their assets under management (AUM) jumping 50 percent to Rs 23,000 crore as of March 2017, up from Rs 15,000 crore in March 2016.

"We expect AUMs of these new companies to grow at a CAGR (compounded annual growth rate) of 40 per cent over the next four years, compared with 17-18 percent expected for the housing finance sector as a whole," CRISIL added.