Lenders may try to reduce their credit risk by offering lower loan amounts, given the ongoing correction in property prices
Falling real estate prices may offer some hope to those wanting to buy a house, but things may not be that easy.
Banks may turn cautious while disbursing home loans. Experts in the banking industry confirmed to Moneycontrol that loan disbursements can get stringent. This tightening can impact home and top-up loans. Two reasons are cited for this phenomenon. First, the repayment capacity of the average borrower has deteriorated. Second, in many cases, the prices of the properties that are acquired using loans (and also the collateral for the loan) are also decreasing.
Typically, in a crisis, banks tend to go slow on their lending activities. According to a TransUnion CIBIL Credit Outlook (TUCIBIL) report (June 2020), the approval rates for home loans declined by 16 per cent between the second quarter of 2008 and the first quarter of 2009 due to the global financial crisis back then. A repeat is possible in the post-COVID world.
Approvals apart, the demand for home loans are expected to be low in 2020.
What should you do?
While buying your dream house, do not rely on what banks told you before COVID struck. Check with the bank if the loan approval letter is still valid before entering into any property purchase deal. Pull out your credit report, and fix errors, if any. If you have taken a moratorium on your existing loans, be prepared for an extra-cautious stand from your banker while assessing your loan application. Repay your loans and credit card dues on time.