The current pandemic has hit the world economy badly and we all are going through major difficulties. During any economical crisis like the present one, banks and other non-banking financial companies tend to reduce their lending activities. The same may have impacted the outlook of banks towards home loans and many banks may become reluctant to disburse new home loans. The economical crisis in the financial year of 2008-09 led to a decrease of 16% in the approval of home loans. Many are anticipating similar situations in current times as well.
The decrease in real state prices in recent times may seem to be a good indicator for many. The banks however may feel different.
Based on the impacts of the ongoing pandemic on the economy, the banks may shift their actions in the following way.
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Increase in the margin of the repo-linked lending rate
The repo-rate lending rate goes up or down based on the repo rate decided by RBI. Needless to say that when the repo rate falls, the lending rates fall to the same volume and vice versa. However, the banks have the freedom of deciding the spread or margin on the repo rate. The spread refers to the difference between the actual repo rate of the RBI and the lending rate of the bank. The banks may increase the margin of the repo-linked lending rate in the near future.
The lending risk raised due to the current economic crisis has made the banks cautious and hence, many banks may increase the margin to justify the risk level. Please note that such a move by the banks will not affect the existing loan borrowers and they will be repaying the loan at the preset rate.
Approval of loan application may be tough
The approval process of loan applications is expected to become more attentive. Keeping the storm of layouts and payouts in mind, some banks have added more columns in their loan applications. Applicants working in sectors that have been greatly affected by the pandemic such as tourism, hospitality and so on, are more likely to get declined or advised to apply for a joint loan.
You are not completely risk-free even if you have not been subject to layout or cutoff. The banks are now examining the layouts and cutoffs in the company you are working as well. The current state of your company will play a crucial role in your loan approval.
Loan amount may decrease
Considering the risk factors, many banks may reduce the loan amount. In general, banks offer a home loan of up to 80% of the loan-to-value. The percentage is likely to go down and the loan borrowers may have to pay a bigger share of the loan amount. Earlier banks were comfortable in setting the EMI as 30% or in some cases up to 50% of the monthly income of the borrower. The EMIs amount may face decline as well. People can also avail low Home Loan interest rate for further clarity.
Credit score to become more crucial
The banks are no more going to rely on only the current credit score of the borrower. They will study how the credit scores of the loan applicants have changed over time.
Under-construction houses may be ignored
Houses going under-construction may fail to earn the favor of the banks. The home buyer may be affected negatively by the price correction. The banks generally try to avoid such complications. Moreover, the chance of delay in completion of construction cannot be overlooked. In the current situation, loan application for a ready property has more advantages against a loan application for an under-construction property. If you must require a loan for a house under construction, contact your bank and see if they are willing to provide the loan.
The resistance of the banks towards home loans is because of the decreasing repayment credibility of the loan applicants. If you are thinking of availing a home loan anytime soon, you should talk to your bank and find out all the conditions.