What is driving the growth of home loans? See what you need to know

Decadal low interest rates as well as stable property prices will drive home loan`s growth in FY23.

As per India Ratings and Research, lowest interest rates seen in decades along with stable property prices and the low impact of the Covid-19`s third wave have led to improved affordability for borrowers.

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"This accompanied with the need for a bigger housing space during the pandemic bodes well for financers to drive the overall assets under management (AUM) growth higher, despite high competition from banks," the ratings agency said.

"Ind-Ra believes affordable HFCs could witness strong loan growth due to increasing geographic penetration and a possible increase in ticket size (partly due to asset inflation), thereby driving loan growth higher in FY23."

Besides, home loan borrowers have benefitted on other counts such as concessions offered in stamp duty rates by certain states and government`s push through Credit Linked Subsidy Schemes along with continuing income tax exemptions amongst others.

"Ind-Ra has also maintained a Stable rating Outlook on HFCs for FY23. Funding mix for both large ticket and affordable housing financiers has moved in favour of more stable and longer-term sources."

"The Reserve Bank of India`s liquidity measures during the pandemic have increased banks` appetite for funding the segment."

Furthermore, higher accretion of public deposits aided by lower bank deposit rates has supported large housing financiers.

"Whereas, affordable housing financers have been supported through a rising share of funding from the National Housing Bank refinance schemes, helping them lower their cost of borrowings and containing any significant margin compression."

In addition, the agency said the industry has navigated the Covid-19 pandemic with moderate disruptions in collection efficiency and a build-up in asset quality, partially also led by the implementation of the circular on NPA classification.