Home loans could be steadfast amid a rate hike wind

India’s housing loan market has remained the bedrock of growth for banks, despite vicissitudes of the general real estate market and the economy. The covid-19 pandemic shock has dealt a hard blow to housing loan growth. But the recovery has been spectacular, of course, partly helped by sops to developers and a brief softening of home prices.

Amid the buzzword of affordable housing, the share of home loans in non-food bank credit has jumped to 14.3 percent as of April from 13.5 percent a year ago. Home loan growth of the banking system has quickened to 13.7 percent as of April from single digits a year back.

The growth registered by housing finance companies in the past year has also been encouraging. Now, developers are worried that the Reserve Bank of India’s rate-hiking spree to fight inflation is a considerable challenge to this nascent recovery.

Home loan rates have already risen, pinching existing home buyers and warning off prospective ones. While the worries are warranted, mortgages have only grown despite adverse interest rate cycles.

Over a 10-year period, the share of housing loans in overall bank lending has increased by about 5 percentage points. Note that this has been despite the growing competition from non-bank lenders. The current cycle may not be any different.