Factors Affecting Millennial’s Home Loan Decisions

Loan-to-value emerged as the biggest determinant for millennial homebuyers while deciding on a lender for buying their first home, a survey by NoBroker.com revealed. It added that other factors that impact millennial homebuyers’ decisions regarding home loans are interest rates, job stability, flexibility of repayment options, and bank policies. The survey included responses from over 1200 homebuyers.

As more and more companies have become accustomed to employees working from home and many of them have adopted the hybrid model, millennials are closer than ever to realising the importance of owning a home, the real estate platform said in a statement. “Millennials now make up 63 per cent of the homebuyers, up from 49 per cent a year ago,” it said.

According to the survey report, LTV (Loan-to-Value) and foreclosure charges are the most critical factors for deciding the lender bank for home loans. “A higher LTV reduces the down payment amount and lowers (and in some cases nullifies) the foreclosure charges allowing the homebuyer the freedom to repay and finish off the loans earlier than the loan tenure. Historically, it is seen that most people end up repaying the loan amount within 8 years (less than the tenure amount),” NoBroker.com said.

Loan-to-Value (LTV) refers to the ratio of loan amount and value of the property. The higher the LTV, the higher is the percentage of the loan amount. This means the lower percent of down-payment is required to be shelled out by the buyer. Another way to understand the advantage of higher LTV is that, for the same amount of money that buyer has to make down-payment, higher LTV allows the buyer to buy a bigger/higher-budget house. Millennials prefer this since it allows them to buy a house of their choice with their comparatively modest savings.

The survey also revealed that a home loan tenure of 10-15 years is the most preferred by 31 per cent of respondents, followed by 24 per cent respondents preferring tenure of more than 10 years. About 65 per cent of these millennials are in IT services while the rest are either self-employed or in government services.

 “In terms of tenure of loan, millennials' preference for the tenure of 10-15 years is driven primarily by two factors: EMI to income ratio and interest payment on the loan amount. Longer tenure means lower absolute EMI for the homebuyers making it more affordable to millennials and gives them the flexibility to maintain a good lifestyle without sacrificing too much in EMIs,” the survey found out.

Amit Agarwal, CEO, and Co-Founder of NoBroker.com said the average age of buying a property has reduced and more and more millennials are buying their first homes. “They prefer an LTV on the higher side as it enhances the overall ticket size of the purchase. This is the reason that higher LTV has emerged as the most important factor for millennials in terms of choosing the home loan providers, apart from interest rate. Even if the loan tenure is for 15-20 or 30 years, most people end up paying off much sooner than the tenure. But as they are sensitive about foreclosure charges and EMIs eat into their current expenditures, they prefer a longer tenure to be able to enjoy a better lifestyle. Since they are early on in their careers, with salary increments, they are able to repay their loans faster than the chosen tenure. Therefore, good foreclosure terms are what they look for,” he said.