Credit score necessary for Home Loans – CIBIL

Looking to the increase in home loan enquiries in last few years which indicates the increase in demand for loans, CIBIL has now asked the customers to check their credit scores if they are planning to apply for the loan in near future.

Due to increase in the property prices and the affording capacity of the customers, the amount of the loans has also been increased in comparison to last fiscal. There has been massive increase in the value of the loans.

“More than one-third of borrowers sanctioned home loans in 2011 were less than 35 years of age and 70 per cent less than 45 years of age”, said Mr. Arun Thukral, Managing Director. Almost every bank now assesses the CIBIL report and CIBIL TransUnion scores.

Borrowers with the credit score of 750 and above are more likely to get home loans easily sanctioned.

Consumer lose confidence in economy, loans demand to fall

The current economic situation was already a matter of concern for the banking sector, a report from AC Nielsen has confirmed the reduced confidence of the consumers in the economy and banking sector, which migh affect the demand for home loans for the current fiscal.

This came as a result of uncertain econmic conditions clubbed with inflationary pressure, sluggish GDP numbers and towering fuel costs. This is for the first time in over 2 years that the country has seen a dip in consumer confidence.

Over the last 5 quarters, the demand for home loan has remained sluggish, the home loans grew by 12% in FY11-12 against 17% growth in FY10-11. There are similar concerns about growth of personal loans.

Due to uncertainties in job prospects, the consumer is getting more wary of his/her spending on clothes, electricity, gas and saving more for uncertain times ahead. However India is still the second most confident nation on consumer confidence index. 

Interest on home loan could soften

“Upward pressure on interest rates is not there. Housing finance companies have already cut lending rates by 25 basis points,” said the NHB chief who expects home loans to grow by 20% in FY13 as compared to 18% in FY12.

According to Mr. R.V. Verma, Chairman and MD, National Housing Bank, “housing finance companies should be outside the purview of the 5 per cent cap on bank loans to non-banking finance companies”. NHB plans to disburse Rs. 17, 500 crore as refinance in duration between July 2012-June 2012.

It also plans to securitize some portion of HFC loans, around Rs. 100-150 crore which will benefit HFCs to undertake fresh business and gain liquidity. The regulator and supervisor of HFCs will also be securitizing a portion of the disbursements it has made to HFCs and banks, said Mr. Verma.

Prepayment charges on home loans removed by RBI

After the recommendations of Damodaran Committee to relief the aggrieved customers by the prepayment penalty on home loans, RBI has announced to stop charging any penalty on the foreclosure of loans.

"It has...been decided that banks will not be permitted to charge foreclosure charges prepayment penalties on home loans on floating interest rate basis, with immediate effect," the Reserve Bank said in a communication to banks. 

 

This will prevent switching of customers from one bank services to another in lieu of lower interest rate and prejudices between existing and new borrowers."As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source," the RBI said. 

 

"Though many banks have in the recent past voluntarily abolished prepayment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system," it added.

Decline in home loan share in Bank’s Credit

RBI has observed continuous decline in the share of home loans in the bank’s credit in this fiscal despite the fact that total outstanding credit to home loans rose by Rs. 179,857 crore in last 4 years period. The reason may be the economic slowdown and the drastically growing real estate prices.

 “While the slowdown in economy had its impact, high inflation ate into household budget and at the same time real estate prices went up sharply, leading to a slowdown in demand,” said Brinda Jagirdar, GM and head of economic research at State Bank of India. “RBI too played some role by tightening the prudential norms and enhancing the provisioning requirement so as to prevent a housing bubble.”

The data gathered by Department of Registration and Stamps, shows 18.5% decline in registration of new homes in Mumbai in 2011-12.