Improved affordability of residential assets, lowest-ever interest rate pushing home loan demand

Favourable demographics, improved affordability of residential properties and historically low mortgage rates are pushing the demand for home loans, mortgage lenders said. Several major banks, mortgage companies and housing finance companies have significantly reduced their interest rates on home loans during the festival period to encash revival in housing demand after the second wave of the COVID-19 pandemic.

In some cases, the interest rate on home loans is as low as 6.5 per cent.

Asked about the likely impact of its decision to cut mortgage rates for the festive season on home loan disbursals, HDFC Managing Director Renu Sud Karnad said the lower interest rate does help but it is just one of the many variables for the pick-up in demand for home loans.

"Housing today is much more affordable than it ever was. In the last couple of years, property prices have more or less remained the same across the country while income levels have gone up," she noted.

Karnad further said people are upgrading to bigger size apartments because of the requirements of additional space post-outbreak of the COVID-19 pandemic.

"Work from home, education from home and entertainment from home due to the pandemic have also made people realise the need for an additional space at home," she said.

Y Viswanatha Gowd, managing director and CEO of LIC Housing Finance, said the company is positive because there is demand for ready-made houses.

"Already pent-up demand is there and even the job market is experiencing an upswing. Even the sentiments of our customers are on the rise because markets are getting opened up. Vaccination comfort has given more confidence to people to move around and physically go and see properties and choose," Gowd said.

Gowd expects housing demand to remain strong during this festival season and beyond, especially in the readymade home segment and in the affordable home segment.

Property consultant Colliers India new CEO Ramesh Nair said several banks in India have cut home loan rates ahead of the festive season to encourage homebuyers.

"This will spur demand for homes across the spectrum -- in the affordable, mid and premium segments. Already the stage is set for a revival in housing demand. This was enabled by stable housing prices, rising salaries in technology sectors, and the greater need to own homes," he said.

Nair opined that the recent rate cuts by banks is a positive initiative for homebuyers, and will nudge homebuying sitting on the fence.

According to Nair, as of August 2021, the disbursement of housing loans grew 9.2 per cent from the year-ago period.

"This is a good sign, and home loan disbursements will further rise in the upcoming months," Nair added.

Karnad further highlighted that demand for housing and home loans has improved because of various positive factors.

"So a combination of factors viz., favourable demographics, improved affordability, lowest ever interest rates on home loans in India are pushing the demand for home loans," said HDFC MD.

Karnad said the sentiments in the real estate market and housing finance have improved on the back of a strong recovery in economic growth and lower job losses than anticipated.

"...much lower job losses against what was feared during the pandemic followed by good recovery in economic growth and sentiments have resulted in improved confidence which is very vital for one to take biggest investment decision in life i.e. buying a house," she observed.

On festive season housing sales and home loan disbursals, Karnad said the festive season is considered as an auspicious time for buying a new house and it boosts the real estate market in India.

"Having said that, we have seen healthy growth for home loans not just during the festive season but also during the normal course of year...," she said.

V Swaminathan, CEO of Andromeda and Apnapaisa, said banks are looking to capitalise on this festive season by offering home loans at a record low interest rate.

Swaminathan said the housing loan market in the country witnessed a rebound and registered a year-on-year growth of 9.6 per cent in terms of portfolio outstanding (PoS) in the third quarter of 2020-21.

Meanwhile, as a part of the festive offer, Bank of India on Sunday announced a 35 basis point reduction in its home loan interest rates and a 50 basis points reduction in vehicle loan interest rates with the minimum rate now starting at 6.50 per cent against 6.85 per cent on home loans and 6.85 per cent against 7.35 per cent earlier on vehicle loans.

This special rate, which is effective from October 18, 2021, till December 31, 2021, is available for customers applying for fresh loans and also for those seeking transfer of loans, the bank said in a statement.

It added that processing charges are also waived for both home and vehicle loans till December 31, 2021.