The
housing finance sector in India is witnessing an upward trajectory due to
government initiatives for affordable housing (interest subsidies under Pradhan
Mantri Awas Yojana), the nuclearization of families, and the demand for housing
in non-metro cities. Increasing urbanization and low mortgage rates are the two
main elements driving market expansion, particularly among the younger
generation.
During
the period 2022-27, the Indian housing finance industry is expected to increase
at a compounded annual growth rate (CAGR) of ~21%. Although banks have
traditionally been the major contributors; Housing Finance Companies (HFCs) are
steadily improving their market share thanks to flexible lending products and
competitive interest rates.
In
the following sections, we try to understand how HFCs stack up against a bank
from the eye of the customer
A
home loan being a significant long-term financial commitment, the rate of
interest is the biggest decision-making trigger when a customer has to choose
between different banks and HFCs. Apart from the interest rate, our research
indicates that flexible loan terms and processing ease & speed are most
critical. HFCs usually score better on processing time since their eligibility
criteria are not as stringent as that of a bank
Customers
tend to prefer HFCs over a bank as they provide.
- Flexibility
with regard to providing higher loan quantum - In comparison to banks, HFCs are
more suitable for many consumers seeking a larger loan amount. When calculating
the market value of a property, banks typically exclude stamp duty and
registration fees. HFCs, on the other hand, are more flexible in including
these in the overall cost of the property
- Less
stringent while assessing creditworthiness - Banks have stringent regulations when
it comes to approving a home loan. This is also true for credit scores. Banks
only provide housing loans to people with perfect credit scores, whereas HFCs
are more flexible and will consider applications with low credit scores