Demand for home loans see a decline amid high lending rates

Home loans, the mainstay of retail lending, witnessed a dip in demand in the December quarter, a credit information company (CIC) informed.

However, there has been a 'marked increase' in demand for credit cards and personal loans, which constitute the more stressful unsecured loans portfolio for banks, Transunion Cibil said.

The demand for unsecured lending products is being driven by the adoption of consumption-led credit products, the CIC said.

Inquiry volumes for home loans for the three months ending December 2022 were 1% lower than the year-ago period, while the same for personal loans and credit cards shot up by 50% and 77%, respectively, it added.

From a loan origination perspective, home loans witnessed a 6% dip by volume and 2% by value in the December quarter against a healthy uptick in personal loans, credit cards and two-wheeler loans segment.

It can be noted that the period saw a surge in interest rates, which led to concerns over the impact on home loans that are longer term in nature, and any increase in interest rates pushes up either the monthly loan servicing costs or increases loan tenors.

The CIC said young consumers now account for a major share of the demand for loans, pointing out that 43% of the inquiries were by people between 18-30 years of age in the December quarter compared to 40% in the year-ago period and 36% in the December 2020 quarter.