There is a great possibility that demand of fresh home loans and increase prepayments could decline due to an increase in the interest rates. As per ICRA report, home loans would move down from 18% to 15% for 2011-2012.
A 3% dip could be seen in 2011-2012 due to two reasons which were not evident in last two fiscals. First being the rise in property prices, while second is an increase in the interest rate. Both the factors are crucial for a person who has to take a home loan. This rise would not only be taxing for a borrower, whose affordability gets adversely affected, but would also affect finance market. Some of the things which would pose key challenges for the finance market are high property prices, less disposable income of borrower, rising interest rates, and stricter rules and regulations in terms of home loan.
ICRA also maintains that though increased interest rate could pose threat for fresh home loans, decline is not taxing either. But, it does not seem that some of the top banks are happy with the ICRA assurance.
SBI and associates like HDFC Group and ICICI Group are key players in the mortgage field and they have 48% of the share in the Indian financial market.
National Housing Bank (NHB) could convert fears of the above given banks into reality. Recently, the NHB has asked the Housing Finance Companies (HFCs) to take back penalties occurred for pre-closure of home loans.
Not only this, but the NHB has also affirmed that same interest rates should be charged from all the customers, whether they are applying for new home loan or not.
Most disappointing thing would be that the ‘asset quality’ would be getting affected and credit cost would also suffer from 10 to 15 basis points.