Call this a diwali gift from National Housing Bank, the housing finance regulator, to all future home loan borrowers.
Retail home loan borrowers can now bring in lower amounts towards their initial contribution for availing themselves of housing loans from housing finance companies (HFCs).
This facility of lower upfront contribution (towards home equity) will be available in cases where the home loans availed from HFCs is above ₹ 20 lakh.
Also, such loans should be supported by a mortgage guarantee cover issued by a registered mortgage guarantee company.
In India, the total HFCs’ portfolio of retail housing loans stood at about ₹ 3 lakh crore. About 55 per cent of this is loans above ₹ 20 lakh.
Regulatory relaxation
Under the latest regulatory relaxation, NHB has now allowed HFCs to provide housing loans above ₹ 20 lakh with a loan-to-value (LTV) ratio of up to 90 per cent if such loans are supported by a mortgage guarantee.
This move could affect the pricing of such home loans and encourage HFCs to cut lending rates given that there would be lower default risk thanks to the mortgage guarantee cover.
This would increase potential home owners and add further depth to the retail housing loan market in India.
Simply put, borrowers looking to avail themselves of housing loans above ₹ 20 lakh need to bring only 10 per cent of the loan upfront and the balance 90 per cent could be funded by the housing finance company.
Prior to this latest regulatory change, LTV ratio was limited to 90 per cent for loans up to ₹ 20 lakh, 80 per cent for loans up to ₹ 75 lakh and 75 per cent for loans over ₹ 75 lakh.
“This is a win-win for both the borrowers and the HFCs. This I believe, can be a big game changer and can indeed revolutionise the retail home loan market in the country,” R V Verma, former Chairman and Managing Director, NHB, told BusinessLine here on Friday.
Verma, who had mooted and pushed for this facility when he was at the helm of NHB, also said that the Reserve Bank of India (RBI) should allow a similar dispensation for home loans extended by banks.
For India Mortgage Guarantee Corporation, the only registered mortgage guarantee company till date in India, the move will help it share part of the HFC’s risk on high LTV housing loans and enable HFCs to deploy their capital optimally.