Home loans have become a popular way for people to finance the purchase of a home. This is due to various reasons such as the high cost of real estate, tax benefits, low-interest rates, flexible repayment options, and easy availability. Owning a home is a significant financial goal for many people, but it can be difficult to achieve without a loan.
However, according to a report by a credit information company (CIC), home loans witnessed a dip in demand in the December quarter and the demand for unsecured lending products is being driven by the adoption of consumption-led credit products.
Inquiry volumes for home loans for the three months ending December 2022 were 1% lower than the year-ago period, while the same for personal loans and credit cards shot up by 50% and 77%, respectively, it added.
It also added that there has been a ‘marked increase’ in demand for credit cards and personal loans, which constitute the more stressful unsecured loans portfolio for banks, Transunion Cibil report said.
From a loan origination perspective, home loans witnessed a 6% dip by volume and 2% by value in the December quarter against a healthy uptick in personal loans, credit cards and two-wheeler loans segment.
It can be noted that the period saw a surge in interest rates, which led to concerns over the impact on home loans that are longer term in nature, and any increase in interest rates pushes up either the monthly loan servicing costs or increases loan tenors.
The CIC said young consumers now account for a major share of the demand for loans, pointing out that 43% of the inquiries were by people between 18-30 years of age in the December quarter compared to 40% in the year-ago period and 36% in the December 2020 quarter.
From a geographical perspective, there has been an increase in the share of inquiries from the rural and urban segments at the expense of inquiries from metro areas, it said.
In what should be a data point keenly looked on by the lenders, potential borrowers classified as ‘below prime consumers’ saw a 4 percentage point increase to 40% in the December quarter compared to the same period a year ago.
Home loan approval rates have come down marginally to 41%, while both personal loan and credit cards saw sharper corrections at 21% each, the report said.
From an outstanding balances perspective, home loan balances were up 16% in December 2022 compared with a 19% growth in credit cards and 33% in personal loans, it added.
The credit card segment has displayed a 0.25% increase in non-payments for over 90 days at 2.31%, while the same for personal loans has improved by 0.14% to 1%, and home loans have seen a 0.39% improvement to 1.21%.
“In view of the impact of global headwinds, it is crucial to continue to carefully monitor credit risk, especially early delinquencies and leverage ratios,” news agency PTI quoted credit agency’s MD and CEO Rajesh Kumar as saying.
Moreover, with the rising cost of property, home loans have become a necessity for most homebuyers. Additionally, home loans offer several tax benefits to borrowers, making it a preferred financing option. The interest paid on a home loan is eligible for tax deduction under Section 24 of the Income Tax Act, and the principal amount repaid is eligible for deduction under Section 80C.
Furthermore, home loans come with flexible repayment options, allowing borrowers to choose the tenure and EMI amount as per their convenience.
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