- Thinking of buying a house in 2020? First get a clarity on these points
- The points include your salary and employment situation, current home loan interest rates - Read this post that explains all
The year 2020 has been far from ideal as far as economic activities are concerned. These activities also include the buy and sale of housing units across India as the Coronavirus-induced lockdown has slowed down the process. Real estate offices were shut for two months before the government started easing restrictions. In all these months of the lockdown, a lot of things happened; the loan moratorium was announced by the RBI giving borrowers the option to stop paying their dues. The moratorium will continue on all loans till August 31, 2020. While this serves as good news for borrowers struggling to cope with times of salary cuts and job losses due to the lockdown, this has raised concerns for many lenders (both banks and non-banking financial companies (NBFCs)) as they find it hard to deal with less interest earnings. Plus, banks have tightened their stance on home loan approvals. However, it didn’t deter the RBI to cut the repo rate by 40 basis points to 4% on May 22, 2020. It further spills into banks cutting their home loan rates in the same proportion.
So, should you buy a house in 2020 or wait further? Well, there’s no definite answer to it. What we can do is tell you recent developments on home loans in detail so that you can decide better. Let’s begin!
What Makes You Buy a House in 2020?
There are some positive indicators including a drastic fall in interest rates that encourage an individual to buy a house in 2020.
Interest Rates Have Come Down Substantially
Before the lockdown, the average home loan interest rate was around 8.30%-9.00% per annum. With nearly 4 months into the lockdown, the rate has come down to around 7%-8% per annum. You could see how much the rates have eased and increased the affordability of many. Check out the table below showing the interest rates of top lenders offering home loans in India.
|Lenders||Home Loan Interest Rate (In Per Annum)|
|State Bank of India (SBI)||9.15% - 11.30%|
|HDFC Limited||8.50% - 9.40%|
|ICICI Bank||9.00% - 10.05%|
|LIC Housing Finance (LIC HFL)||8.50% - 10.75%|
|Bank of Baroda||8.50% - 10.60%|
|Bank of India||8.85% onwards|
Special Home Loan Rates Based on Credit Score
Lenders have started offering special home loan rates to borrowers having a good credit score. The score criterion can vary from lender to another. Now this rate is irrespective of the loan amount you service. Credit scores are provided by several credit bureaus in India. However, most lenders trust the CIBIL score more than others. The below table shows you the rate for borrowers having a good credit score.
|Lenders||Credit Score Criterion||Home Loan Interest Rate (In Per Annum)|
|HDFC Limited||780 and Above||6.95%|
|LIC Housing Finance (LIC HFL)||800 and Above||7.50%|
|Bank of Baroda||726 and Above||6.85%|
|PNB Housing Finance (PNBHFL)||800 and Above||8.50% - 10.35% (Salaried)|
These are some positives that can make one buy a house in 2020.
Profitability of Banks Likely to Take a Hit
Home rates have fallen by as much as 115 basis points i.e. 1.15% in nearly 4 months. But a sharp cut in lending rates, extended moratorium and a massive rise in deposit growth have increased the possibilities of margin contraction for banks. As per the latest news reports, bank margins could contract by as much as 10-15 basis points (100 basis points =1%). The credit growth of banks has come down to 6.20% till June 5 as opposed to more than 11% a year ago. What staggering is the 11.30% growth recorded in deposits despite interest rates getting cut on savings accounts, fixed deposits, recurring deposits, etc. It would be fair to say that deposits have outpaced the growth of loans, thereby increasing the possibilities of less profitability for lenders. So, the RBI may either hold on to the repo rate or won’t cut it aggressively, giving lenders some respite in these tough times. In return, your home loan rates may not come down aggressively from here on. So, if you are waiting for some other time to buy a house, rethink it from this perspective and arrive at a better conclusion.
How Deposits Have Outpaced Credits in Terms of Growth?
The growth of deposits has a lot to do with the uncertainty looming over the capital markets in the wake of economic disruptions caused due to the COVID-19 pandemic. People are increasingly switching their money from mutual funds and other investments to savings accounts and other bank deposits. The trend might continue for some time. Whereas, credit growth dipped due to extended moratorium, lack of demand owing to disruptions caused to businesses, etc.
Check Your Employment Situation
Needless to say, you should not buy a house in 2020 if you are facing salary cuts or are jobless. But those who are getting full salary should also see their overall employment situation. Check the sector to which your company belongs. See what trends are developing there. Check your company too and its developments. If they are positive, go ahead and buy a house in 2020. Else wait for the right time to do it.
Home Loan Sanction Amount Could be Lower
Lenders have tightened credit norms considering frequent job losses and salary cuts. Those who got the sanction before the lockdown are made to resubmit their salary slip for revision. Given the lower credit growth as explained above and uncertainty looming over the income of many individuals, lenders may either delay the home loan approval or sanction a lower amount. So, if you have more savings than what’s required to buy a house, go ahead and do it. Otherwise, wait for this tough period to pass away and apply for a home loan when things are normal.