Home loan growth to moderate amid intensifying competition; LAP to normalise off a high base
FinTech BizNews Service
Mumbai, November 19, 2025: Mortgage finance assets under management (AUM) of non-banks is set to grow 18-19% this fiscal and the next, in line with the 18.5% growth seen last fiscal, even as the sub-segments—home loans, loans against property (LAP) and wholesale loans—will see varying growth.
Home loans, the largest segment (59% of AUM), will see moderate growth at 12-13% this fiscal and the next from 14% last fiscal. While LAP (32% of the AUM) will continue to outpace home loans, here, too, growth will slow to 27-29% from 32% last fiscal. On the other hand, the wholesale portfolio, comprising developer finance and lease rental discounting, with a modest revival in 2025, should grow at a faster clip, supporting overall sector growth.
With respect to home loans, long-term structural drivers such as low mortgage penetration and rising urbanisation remain intact. Affordability indicators, which influence demand, are also supportive, with disposable incomes continuing to outpace a rise in house prices3 amid lower interest rates.
The income tax cuts announced in the Union Budget for this fiscal, should further augment disposable incomes. The recent reduction in goods and services tax rates on building materials and under-construction homes should further enhance affordability. Plus, policy initiatives such as the Interest Subsidy Scheme should support growth in the affordable segment.
There are, however, two challenges for non-banks: First is the intense competition from banks, which continue to dominate the prime home loan segment.
Says Subha Sri Narayanan, Director, Crisil Ratings, “Public sector banks have upped the ante and surpassed prime-focused housing finance companies (HFCs)4 last fiscal and in the first half of this fiscal. Competition on pricing is evident from the strong growth in lower-interest rate home loans of banks—the share of the sub-9% interest rate portfolio increased to over 60% as on March 31, 2025, from ~45% last year. As a result, many large HFCs are facing increased customer churn through balance transfer cases.”
The second challenge is an expected moderation in residential real estate sales growth (in value terms) in the top seven cities5, which could affect disbursement of loans availed of for funding new homes.
However, it must be noted that the home loan portfolio of non-banks comprises a good mix of loans availed for new homes and for self-construction or resale properties—in fact, about half of the disbursements are towards the latter. The proportion of self-construction/resale properties in the AUM is even higher for affordable housing financiers.
Meanwhile, growth in LAP, which peaked in fiscal 2024 and remained strong last fiscal, will normalise yet will remain the fastest-growing mortgage segment for HFCs and NBFCs.
Says Aesha Maru, Associate Director, Crisil Ratings, “The growth trajectory across various sub-segments within LAP will be influenced by delinquency trends, which will vary by ticket size. Delinquencies in the LAP segment are increasing, with the smaller ticket sub-segments seeing more of it. Lenders catering to that specific sub-segment are exercising caution, even as growth in the larger ticket size segment remains strong.”
On the wholesale front, this portfolio was on a downswing till fiscal 2024 but saw a reversal recently with players focusing on financing projects of high-quality developers. Growth here is expected to be healthy at 15-16%, up from 6% in fiscal 2025, especially given the low base.
The ability of non-banks to adapt their business models to the evolving competitive landscape, anchored in strong risk management, will be crucial to their growth prospects.
