Pune, 1^st January 2025: A loan against property (LAP) is the go-to credit vehicle for many borrowers looking to finance big-ticket expenses. This secured loan allows you to pledge your property as collateral, for financing either personal or business needs. From medical emergencies to debt consolidation, this multi-purpose loan allows you to fund diverse needs by unlocking the hidden value of your property.

Like other loan products, LAPs are also influenced by prevailing macroeconomic conditions. In 2024, the landscape of borrowing against property continues to evolve, driven by economic shifts and regulatory changes. If you plan on applying for a loan against property, understand these key trends in 2024 to make an informed and financially smart decision.

2025 Trends Influencing Loans Against Property

Here are some financial trends that you must keep in mind when considering a loan against property:

1.       Bank Policy Rates

The Reserve Bank of India (RBI) formulates and implements our country’s monetary policy, including setting interest rates and regulating credit. It deploys mechanisms such as the repo rate to regulate borrowing rates in the country. The repo rate refers to the rate at which financial institutions can borrow funds from the RBI. An increase in this rate directly results in an increase in the interest rates charged by banks on loans, making borrowing expensive.

The last time the repo rate was hiked was in February 2023, when it was hiked by 25 basis points to 6.50%. As of February 2024, when the last update was announced, the RBI maintains the repo rate at 6.50%. Experts suggest that the RBI is expected to decrease rates in the later part of the year.

2.       Reserve Ratios

The RBI requires banks to maintain certain reserves. These include:

• Cash Reserve Ratio (CRR): This is the percentage of deposits that financial institutions must maintain as a cash reserve or deposits with the central bank. This amount cannot be offered as loans to borrowers. If CRR increases, a bank’s capacity to offer loans decreases.
• Statutory Liquidity Ratio (SLR): This is the percentage of deposits that financial institutions must maintain as government securities, bonds and other forms of liquid assets. An increase in the SLR reduces a bank’s capacity to lend.

RBI has elected to proceed with the existing CRR at 4.50%, which has remained unchanged since 2022, when the regulatory body increased it from 4% to 4.50%. Further, the SLR also remains the same as last year at 18.00%.

3.       Transparency in Loan Charges

As of February 2024, RBI has mandated all banks to furnish a Key Fact Statement (KFS) to retail and MSME (Micro, Small and Medium Enterprises) term loan borrowers. According to the guidelines, this document must provide details on the all-inclusive Annual Percentage Rate (APR) and grievance redressal mechanisms. Previously, the KFS was only specifically mandated for loans to individual borrowers.

This bodes well for both individual and MSME borrowers considering a loan against property. Not only does it promote financial transparency, but it also empowers them to compare lenders more comprehensively based on ancillary charges, such as processing fees and documentation charges, in addition to interest rates.

Why Borrowers Choose Loans Against Property

Here’s why you should consider applying for a loan against property:

• Attractive Interest Rates: Since it is a secured financing option, a loan against property’s interest rate is more competitive than that offered on unsecured loans.
• Flexible Repayment Tenure: Borrowers enjoy an extended loan tenure of up to 20 years.
• High Loan Amount with Flexibility of Use: Borrowers can get a high loan amount that they can use for personal as well as business purposes.
• Tax Benefits: If salaried individuals use the loan amount to purchase a residential property, they can claim tax benefits of up to INR 2 lakhs on the interest paid under Section 24(b) of the Income Tax Act 1961. Alternatively, you can also claim tax deductions under Section 37(1) of the act if you use the loan for business purposes.

Apply for a Loan Against Property

Borrowers must be aware of the macroeconomic conditions and how they affect the terms of their LAP to make well-informed decisions. Additionally, they must also check their loan against property eligibility with their preferred lender. Most banks today offer a convenient online application process for LAPs, allowing borrowers to start financing their dreams in no time.