Housing Finance Companies Urge Higher Loan Guarantee for Affordable Housing to Boost Low-Income Homeownership

HFCs Push for Expanded Government Scheme Covering ₹25 Lakh Home Loans  

Mumbai: Housing finance companies (HFCs) are advocating for a significant revamp of the government's Credit Risk Guarantee Fund Trust for Low-Income Housing (CRGFTLIH). The proposal seeks to extend the guarantee cover for home loans up to ₹25 lakh, a considerable increase from the current limit of ₹5 lakh, according to sources close to the development.

Higher Guarantee Cover to Empower Low-Income Homebuyers

HFCs are recommending a guarantee cover of 75% on home loans up to ₹25 lakh. Currently, the scheme only offers a 90% guarantee on loans up to ₹2 lakh and an 85% guarantee for loans between ₹2 lakh and ₹5 lakh. The revised scheme aims to bring more low-income homebuyers into the fold by targeting 124 districts across India. This would work in conjunction with existing housing initiatives like the Pradhan Mantri Awas Yojana (PMAY).

Widening the Scope for Affordable Housing

A senior executive from one of the largest affordable housing finance firms revealed that the current scheme hasn't attracted enough interest due to its narrow scope. There have been suggestions to the government revamp the scheme to include home loans of up to ₹25 lakh, which would encourage more activity in low-income housing. The proposal is now under consideration by the Union Cabinet, and a detailed note outlining the scheme's structure has been circulated.

New Scheme to Replace Existing CRGFTLIH

According to the HFCs’ proposal, the existing Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) scheme should be replaced with a broader program that includes higher-value loans. While HFCs have recommended a 75% guarantee cover, the government may consider a 60% cover. Interestingly, smaller loans will continue to receive larger guarantees, ensuring stronger protection for smaller borrowers.

Annual Guarantee Fee for Lenders

The recommendations also suggest an annual guarantee cover fee of 50-75 basis points, which would be absorbed by mortgage lenders. This would further ease the burden on borrowers and incentivize lenders to offer affordable housing loans.

Expanding Affordable Housing to New Territories

Introduced in 2012, CRGFTLIH never gained significant traction due to its limited reach. However, a revamped scheme that covers higher loan amounts could motivate affordable housing companies to expand into housing-starved districts and provide loans to new customers, particularly those who have no prior credit history. This would not only support housing finance companies but also fulfill the housing aspirations of lower-income households.

Under the revamped scheme, lending institutions will continue to receive credit risk guarantees from the trust for housing loans up to ₹5 lakh, specifically for economically weaker sections and lower-income groups in urban areas. These loans are extended without the need for collateral security or a third-party guarantee, making homeownership more accessible for vulnerable segments.