The Indian government is contemplating doubling the credit guarantee for affordable housing loans to Rs 40 lakh, aiming to enhance access for buyers and support growth in the sector amid rising property prices and market demands.
The government is weighing a move to lift the credit guarantee available on affordable housing loans to Rs 40 lakh from Rs 20 lakh, a step that could broaden access to finance for homebuyers and give housing finance companies and developers a modest lift, according to ZeeBiz. The proposal has been discussed in meetings between the housing and finance ministries as officials assess how sharply property prices have climbed while the guarantee cap has stayed unchanged.
The credit-risk cover is designed to reduce lenders’ losses if an eligible borrower defaults, making banks and housing finance companies more willing to extend loans to customers with thinner credit histories. NITI Aayog has separately argued for doubling the limit to Rs 40 lakh as part of a wider push to support affordable housing, alongside fiscal incentives for developers. Industry voices have also said the old thresholds no longer match market realities: State Bank of India has pointed out that average loan sizes have risen sharply, especially in cities where modest homes now often cost far more than they did a few years ago.
Still, the Housing Ministry is understood to have concerns that a higher ceiling could steer lending towards pricier homes rather than the lower-cost segment the scheme was meant to support. That tension reflects a broader policy debate over how to expand credit without diluting the purpose of affordable housing. Business Standard reported that NITI Aayog has also recommended an NHB- and HUDCO-anchored fund for affordable rental housing, underlining the government’s wider effort to patch gaps in the financing ecosystem.
If approved, the change could also require a larger guarantee corpus than the roughly Rs 3,000 crore fund currently in place, given the higher exposure that would come with each covered loan. For lenders, the biggest benefit would likely be in tier-two and tier-three markets, where borrowers often need extra support to qualify for housing finance. For buyers, the immediate effect would be greater access to loans in a market where construction costs, land prices and household borrowing needs have all moved higher.
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