Sharing this article which appeared in ET Realty
Banks have turned active in giving out home loans for as long as 30 years for the first time since credit crisis days as they attempt to revive demand in high-end home purchases which has come to a grinding halt in the top six cities, said two people familiar with the development. This may turn out to be a life line for struggling real estate developers saddled with unsold inventories despite throwing freebies such as registration and other perks such as car park, and gadgets such as television sets and part furnishing.
Two largest mortgage lenders State Bank of India and Housing Development Finance Co. are leading the push. These long duration loans above 20 years are being given to properties valued at more than Rs 1 crore, and for salaried people in the age group of 25-30 who are at the early stages of careers and at the same time have the potential to be high earners as they grow.
“We are seeing better traction for home loans this year as younger people are taking loans for long tenors such as 25-30 years,” said an executive at the State Bank of India who did not want to be identified.
Till recently banks were lending for homes with a maximum tenor of 20 years since anything beyond that was considered risky as the ability to repay diminishes. But given the rising salary expectations and the optimism of youngsters to load up on debt, banks are pushing for loan terms for as high as 30 years.
Reduction in lending rates along with 15-25% salary rise across the spectrum has improved buying capacity for customers. “With pay commission salary hikes and interest rate cuts, borrowers’ eligibility will definitely go up,” said Keki Mistry, vice-chairman at HDFC. “People who were holding their decisions to buy homes expecting further price correction will now come back.” A few months ago before the latest round of rate cuts, a person who was qualifying for Rs 1 crore worth of home loans, can now avail loans with 20-30% higher ticket size, according to home loan consultants.
For example, HDFC Bank which sells home loans on behalf of its parent HDFC, charges Rs 1,044 EMI for Rs 1 lakh loan with 15-year maturity versus Rs 874 and Rs 841 with 25-30 year tenors. “Large value loans in the wide range of Rs 80 lakh and 1.60 crore are picking up,” said Vipul Patel, founder at Mortgage World, a real estate advisory firm. “With realistic price expectations home demand is coming back. Banks are now pushing for long tenor loans in 25-30 year categories, which in turn increases borrowers’ eligibility.”
Lenders have significantly slashed rates after the Reserve Bank of India reduced the benchmark borrowing cost by 50 basis points in September. For example, SBI and HDFC sell home loans at about 9.50-9.55% or a little less than that. The maiden base rate, less than what banks cannot lend, has declined by 60 bps even as the central bank lowered repo rate by 125 basis points since January.