Other factors include home loan interest rates, job stability, flexibility of repayment options, and bank policies
In a survey conducted with over 1200 homebuyers, NoBroker.com, India’s largest peer to peer real estate platform found that Loan to Value (LTV) is the biggest determinant for millennial homebuyers while deciding a lender for buying their first home.
As more and more companies have become habituated to employees working from home and many of them have adopted the hybrid model, millennials are closer than ever to realising the importance of owning a home. Millennials now make up 63% of the homebuyers, up from 49% a year ago. NoBroker’s data already showed that Q1 2021 sales outperformed Q1 2020 by a good margin. Bangalore and Chennai have seen a jump of 41% and 47% respectively in sale transactions while Hyderabad has seen a jump of 52%. Mumbai and Pune are leading the sales with 86% and 83% more transactions than Q1 2020. Delhi-NCR too isn’t far behind with a 34% jump.
Affordable home loans due to historic low interest rates and digital adoption in the loan application processing by the lender banks are catalysing the trend along with attractive builder discounts and government initiatives.
Key findings from the survey:
LTV (Loan-to-Value) and foreclosure charges are the most critical factors for deciding the lender bank for home loans, as per the survey. A higher LTV reduces the down payment amount and lowers (and in some cases nullifies) the foreclosure charges allowing the homebuyer the freedom to repay and finish off the loans earlier than the loan tenure. Historically, it is seen that most people end up repaying the loan amount within 8 years (lesser than the tenure amount).
Loan-to-Value (LTV) refers to the ratio of loan amount and value of property. Higher the LTV, higher is the % of loan amount. This means lower % of down-payment is required to shelled out by the buyer. Other way to understand the advantage of higher LTV is that, for the same amount of money that buyer has to make down-payment, higher LTV allows buyer to buy a bigger/higher-budget house. Millennials prefer this since it allows them to buy house of their choice with their comparatively modest savings.
A home loan tenure of 10-15 years is the most preferred by 31% respondents, followed by 24% respondents preferring tenure of more than 10 years. About 65% of these millennials are in IT services while the rest are either self employed or in government services.
In terms of tenure of loan, millennials’ preference for the tenure of 10-15 years is driven primarily by 2 factors: EMI to income ratio and interest payment on loan amount. Longer tenure means lower absolute EMI for the homebuyers making it more affordable to millennials and gives them the flexibility to maintain a good lifestyle without sacrificing too much in EMIs.
Amit Agarwal, CEO and cofounder of NoBroker.com commented, “The average age of buying a property has reduced and more and more millennials are buying their first homes. They prefer an LTV on the higher side as it enhances the overall ticket size of the purchase. This is the reason that higher LTV has emerged as the most important factor for millennials in terms of choosing the home loan providers, apart from interest rate. Even if the loan tenure is for 15-20 or even 30 years, most people end up paying off much sooner than the tenure. But as they are sensitive about foreclosure charges and EMIs eat into their current expenditures, they prefer a longer tenure to be able to enjoy a better lifestyle. Since they are early on in their careers, with salary increments, they are able to repay their loans faster than the chosen tenure. Therefore, good foreclosure terms are what they look for.”
Some private banks and NBFCs are offering LTV of more than 80% to reduce the burden of down payment. Banks have also launched hybrid products where home loans are supplemented with personal loans to help home buyers make the down payment.
While the LTV value is decided as per RBI guidelines (For Loans <=30 lakhs, max LTV = 90%; Loans > 30 lakhs and <=75 lakhs, max LTV is 80%; Loans>75 lakhs, max LTV is 75%), most private banks like HDFC, ICICI offer higher LTV based on higher Direct market value (DMV) rather than on sale consideration.
Suvidha home loan from Bank of Baroda provides additional 5% of the sale consideration as loan for registration expenses. Some lenders supplement the home loans with personal loans to ease the pressure of down payment or provide 15% of the home loan as a loan for Interior works of a property purchased.
