New Delhi: A Crisil research report on mortgage finance has predicted that home loans, a big contributor to the overall credit off-take will have a sluggish growth during the year 2008. The expected rate of growth will be nowhere near what the segment had witnessed in the previous 3 years. While the segment performed at 18 percent growth rate during 2006-07, the year 2007-08 will likely see a modest 10 percent growth. The boom in property prices witnessed during 2004-06 and an increase in interest rates were the prime reason for a slowdown in this segment. The mortgage finance industry witnessed a tremendous growth riding on the low interest rates and booming economy between 2000-01 and 2005-06. The industry grew by 35 percent during this period on a compounded basis and bloated by Rs. 86,500 crore. “Considering the current interest rate environment and factoring in possible salary increments for a borrower, we expect disbursements to slow down further to around 10 per cent in 2007-08," the report added. The rising interest rates had a huge impact on the EMIs paid for home loans in India. The percentage of total salary consumed by home loan EMI rose from 32 percent in 2003-04 to an astonishing 50 percent in 2006-07. The property prices should reduce at least by 15-20 percent for it to be affordable to an average home loan borrower. The report also stated that the proportion of borrowers considered risky by the banks in home loan segment has increased. People with home loans of tenures over 15 years and paying more than 50 percent of their income as the EMIs, which was 4-5 percent two years ago has increased to 7-8 percent by the end of March 2006. "There could also be a risk of default if the rise in EMIs outstrips the growth in salaries. For a 400 basis point increase in interest rates, EMIs on 15-20 year loans taken in 2003-04 would have to go up by 10-26 per cent to fully absorb the impact of hike in interest rates," it said. The report warned that the lenders would have to implement better appraisal standards and a more streamlined, monitoring and collection systems so that the credit quality of their home loan portfolio doesn't deteriorate. |
