While the festive season and the New Year buzz have just faded in the retail sector, the party does not seem to end for home loan borrowers. Home loans in India have had a rollercoaster ride. The sluggishness in the Indian real estate sector, high inflation rates, high interest rates and the high levels of scrutiny of home loan borrowers after the 2008 crisis had lead to an overall dampening on the home loan market in the past few years.
Things, however, have gradually become relatively rosier in the preceding 12 months, with an increase in affordable housing projects, dropping inflation, and lowering of interest rates making home loans more pocket-friendly.
The pulse of the home loan market India, being a diverse financial market, has a home loan footprint that is as diverse as its constituent demographics. Home loans are currently back in favour, and this is borne out by the movement of the BankBazaar Home Loan Index (HLI) in the preceding six to twelve months. The BankBazaar HLI is an indicator that has been developed taking into account the diverse market trends of the Indian housing finance sector.
Other statistics revealed by home loan index The average age of loan applicants in India is close to 34 years and the average monthly income of loan applicants is Rs 65,000. This points to more and more people settling down in life with their own house in their early thirties. The rising young population with high disposable income is nurturing the home loan market, as more people resort to home loan route for property purchase as well as tax benefits.
It also reveals that people belonging to the lower income groups are either struggling to get loan approvals or taking lesser loans.
Borrowers getting tech-savvy for their financial needs and trying out new digital trends like mobile applications for loans are another finding, which shows convenience and on-the-move services will appeal to more and more users in the coming years.
The proportion of loan borrowers who used their smartphones to apply for a home loan has increased from 17 per cent to 22 per cent between April and December 2015.
Metros on top, but towns driving numbers The BankBazaar HLI used four basic parameters-application submissions, disbursals, average loan value and total loan value-to understand city-wise home loan trends in India.
Not surprisingly, Bengaluru and Mumbai have been the top cities across these index parameters. Demographic factors, like average income of residents in Bengaluru and Mumbai, as well as the fact that these two cities are the software and economic hubs of India respectively, makes it easier for loan applicants to apply for as well as get faster approval. As an emerging trend, smaller cities and towns, including tier-2 and tier-3 cities, have gained substantial prominence in the home loan market. Major PSU banks and a few leading private banks in all have registered a strong demand from smaller centers helping the banks improve their home loan credit books.
According to BankBazaar’s Home Loan Index, the growing demand from tier-2 and tier-3 centres is also ensuring that home loan as a financial instrument remains as a favourable tool for the common man.
But with respect to the average ticket size of loans, cities are still on top. While Bengaluru recorded an average loan value of Rs 30 lakh, in Surat it is Rs 18 lakh. The reasons for this trend can be higher property prices as well as applicants who can afford more loan.
The top 10 cities in India contributed a higher chunk of the country’s home loan market, with close to 70 per cent of applications and disbursals.
With lower interest rates as compared to previous years, inflation likely to fall further, and with a hope of regularised real estate prices, the home loan market is likely to consolidate its numbers. This means, if you were looking for a home loan, this may just be the right time for you.
Increasing home loan demand During the period between May 2015 and August 2015, the home loan marketin India as recorded by the index witnessed a dip below the 100-point mark, owing to high interest rates and the sluggish real estate market across India.
From the remainder of last year, an upbeat mood prevailed due to the falling interest rates and low inflation. The home loan index at the end of December 2015 stood at 106 as compared to the reference value of 100 in April 2015, reflecting a reversal in consumer interest levels in the housing finance market.
This correlates with the dropping of interest rates, further to the RBI monetary reviews and lowering of bank base rate.
The increasing number of festive schemes, especially in the period between September and December 2015, also boosted the number of loan applications as reflected in the yearend HLI score. The average interest rate of home loans in the surveyed population stood at 9.94 per cent in 2015, as compared to the higher rates in the aftermath of 2008.
The statistics offered by home loan index have revealed a hidden underbelly of the Indian home loan market. The average loan value applied for over the past year is Rs 23 lakh, which shows that mid-range property purchases may be driving the home loan market.
The writer is the CEO of BankBazaar.com
