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The assets under management (AUM) of mortgage finance loans in the country is expected to grow at a healthy 16-17 per cent this fiscal and the next (FY25 and FY26), a report said on Monday.  

Trends in the sub-segments like home loans, loans against property (LAP), and wholesale loans will vary. Over the current and next fiscals, home loans should grow at a reasonable pace of 13-14 per cent, according to the Crisil Ratings report.

Home loan growth is supported by structural factors such as rising urbanisation, better affordability on account of limited housing price increases in recent years, and expected cuts in interest rates.

LAP growth is expected to normalise to 23-24 per cent from the fiscal 2024 high of 37 per cent. Wholesale loans, which were declining over the last 5 years, will see a moderate expansion of 6-7 per cent over the current and next fiscals, the report added.

In terms of the AUM mix, home loans continue to form the majority of the AUM at 60 per cent, LAP forms 30 per cent, and wholesale loans the remaining 10 per cent.

Housing finance companies (HFCs) constitute 80 per cent of overall mortgage finance and 95 per cent of total home loans.

"Many HFCs have managed to meet the PBC requirement, despite the high growth in LAP, through subsequent sell-down of their portfolios. Even then, almost half of the 25 HFCs analysed operate with a narrow cushion of sub-5 per cent," CRISIL Ratings Director, Subha Sri Narayanan, said.

Policy initiatives, such as the reintroduction of the interest subsidy scheme, albeit in a different form from that seen in the past, should support growth in affordable housing finance.

Meanwhile, with larger prime-focused HFCs turning to the affordable housing finance segment, this space continues to get more competitive, the report said.

Nevertheless, LAP will remain the fastest-growing mortgage financing segment for HFCs and non-banking finance companies (NBFCs) for a couple of reasons.

"One, this is a product which caters to micro, small and medium enterprises (MSMEs) and as economic activity remains healthy, so does credit demand in this segment. Two, lenders have greater comfort with this segment given better availability of information on MSMEs with increasing formalisation of the economy and rising number of data sources, thereby supporting more rigorous credit underwriting," said the report.