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A mortgage is a debt instrument that borrowers can use to secure collateral for any specific real estate property. By taking a loan, the borrower and business firm can execute real estate deal in a single payment.
While the lender releases the entire value of the real estate purchase, the borrower repays the loan amount in fixed sets of payment within fixed tenure. If the borrowers default then, the bank or lenders can evict the tenants and sell the house to clear the mortgage debt.
Housing is an important component of investment and in many countries, housing makes up the largest component of wealth. Housing booms and busts often have been detrimental to the financial stability of the economies. After sharp decline during financial crises of 2007-08, the IMF Global Real House Price Index indicates that global housing markets have been steadily climbing up.
For a long time, real estate has been considered one of the best long-term investments to protect against inflation. Unlike many other traditional investment products, real estate is not tied to the stock market, making it an efficient instrument to reduce risk and increase long-term returns.
Nevertheless, no asset class comes with a guarantee, and losses can be expected even for fixed-income investments. The negative impact of the Covid-19 outbreak on the labour market, the retail sector, and consumer demand is hurting the property market which in turn is affecting the financiers of such property.
The negative effects of the COVID-19 are extreme to such an extent that it has challenged the survival and growth of U.S Mortgage Industry that has an outstanding debt balance of around USD 15.6 trillion.
Estimates indicate that the U.S. mortgage industry could face a collapse once again, this time due to the economic consequences following the coronavirus outbreak and massive job losses. It is expected that up to 50% of borrowers could default on their mortgage payments as forbearance request grew by 1896 % between March 16-March 30.
In Italy, the federal government decreed that Italian banks must provide borrowers with the option to suspend payments on mortgages and other eligible outstanding loans. At the same time, banks are also being challenged to prevent small- and medium-sized enterprise (SME) customers from defaulting on their debts, given their relative importance in the Italian economy.
UniCredit, Italy’s largest bank in terms of assets, stated that it has received more than 100,000 requests for moratoriums on outstanding loans worth USD 11 billion.
Mortgage lenders have had to shift focus from their past priorities and projects to deliver an organization-wide response to COVID-19 and its implications.
For example, National Australia Bank (NAB), Australia’s third-largest mortgage lender, announced that it will stop work on about 100 projects almost immediately as it focuses its efforts on addressing a significant increase in customer inquiries. The bank has reported it is continuing only those projects that are essential to its survival.
In addition, following the impacts that the pandemic would have on the industry as a whole (World Bank Report)
The global housing finance market size is estimated at $XX Billion in 2022 growing at –% CAGR till 2030
Rising demand of home loan due to uncertainty of life is a major factor boosting the growth of the home finance market. Launch of new home loan plans is another major factor that is greatly contributing in the growth of the market. Furthermore, presence of global market players in the home loan sector, and increase in number of new market entrants is anticipated to contribute greatly in driving the growth of the home loan market.
Rising global awareness towards the benefits of opting for home finance due to high financial security offered by it is propelling the growth of the market. However, less awareness of home loan among some lower economy countries can deter the growth of the market.
The U.S Mortgage industry is an important part of the financial market of the U.S economy and is considered as the most complex housing financing market in the world.
The industry that was severely impacted during the 2008 Financial Crisis in under stress again due to lack of liquidity support from the government on account of mortarium announced by it on loan repayments. Estimates indicate that if appropriate steps are not taken, there would a huge number of loan defaults that would put pressure on the current capital levels of the lenders, serving a red signal for another major collapse.
The European Mortgage Market has grown massively in the last ten years fuelled by rising house prices, low interest rates, increased availability of credit and increase in the availability of new products and services. The growth has attracted a number of new players in the industry who are operating with newer business models in order to maximise their returns.
Some of the major business models include
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The Asian Mortgage Market are heterogeneous and small in comparison to their counterparts.
The smaller market size in some Asian countries can be attributed to the lower stage of development of the economy as a whole. There are several countries in Asia where per capita GDP exceeds USD 30,000 Japan, Singapore, and Brunei Darussalam. However, per capita GDP for the vast majority of Asian countries is far less than USD 10,000.
The two major countries that dominate the space include India and China.
In case of India which is expected to overtake China to become the most populous country, the demand for housing finance is expected to gain momentum due to growth in population and migration to large cities.
The volume of transactions of existing housing stock is very low due to the complicated registration system. The mortgage market is still at an embryonic stage partly due to the small proportion of the middle-class employed by the formal sector. Extending mortgages to the informal sector entails significant concerns regarding credit risk management.
The sector is under deep stress at present due to two major reasons. Firstly, the crisis of IL&FS crisis caused a liquidity crunch which severely impacted construction activities and secondly, the pandemic has put a stress on such companies owing to economic losses and increasing unemployment which is impacting the capability of the borrowers to repay their loans.
While in China, the mortgage lending is slowly decreasing which indicates a warning signal for the economy as real estate growth is an indicator of economic growth in the economy. Mortgage Lending increased by around 17.8% to $ 3.73 trillion in 2018 which was below the growth rate registered in 2017 that was around 22 %.
HomeForward Mortgage and Down Payment Assistance Loan Programme Launched by MFA for Homebuyers HomeForward, a low-rate mortgage and down payment assistance programme for first-time and repeat homebuyers, was just introduced by the New Mexico Mortgage Finance Authority (MFA) in an effort to increase homeownership prospects for low- and moderate-income New Mexicans.
First mortgage loans and optional second mortgage loans are both available through the programme, and they can both help with the down payment on a house purchase to the tune of 3% of the purchase price.
They are aware that obtaining affordable financing and saving for a down payment may be obstacles to homeownership, so this programme helps address those needs. This is another tool that more New Mexicans can use to assist them in obtaining homeownership, which is essential for fostering wealth, stability, and economic growth in local communities.
In order to offer down payment assistance of up to three percent of the home’s sales price, the programme can be utilized as a standalone first mortgage loan or in conjunction with an optional second mortgage loan. The loan for down payment help normally takes the form of a small monthly payment that is made on top of the homeowner’s monthly mortgage payment and is only permitted to be used for the down payment and not for closing expenses.
As the state housing agency for New Mexico, they are always excited to offer new programmes that will ultimately help more New Mexicans find a safe, high-quality, affordable place to live. “This is a great programme for families who may not be first-time homebuyers or families who may not qualify for other MFA programmes.”
The major players in the market includes U.S Bank Corporation , Bank of America ,J.P Morgan and Chase ,Wells Fargo ,HSBC, Lloyds Banking Group ,Barclays, LIC Housing Finance ,Dewan Housing Finance ,Royal Bank of Scotland etc. Average PAT margins of the industry are around 3% with the highest PAT margins at 16.23 % reported by Housing Development Finance Company.
The industry is also dominated by private players such as Quicken Loans, Reali loans , SoFi etc that also constitute a major market share of the industry.
Climate change will permanently affect housing demand in areas that are already or could become more exposed to natural disasters, if they fail to attract new buyers.
Population migration to cities will continue, which increase the demand but ageing populations and developments in remote working and autonomous vehicles are likely to also drive regional prices. If political issues such as BREXIT, US -China trade war continues while the push towards ESG investments may change housing investment and mortgage funding.
