Buyers can expect reduction in housing loan interest rates
INTEREST CUT RBI reduces repo rate, which may translate into cheaper home loans when banks decide to transfer the interest cut benefit to home buyers
The trend of reducing home loan interest rate is expected to continue with the Reserve Bank of India (RBI) reducing the policy repo rate by 25 basis points from 6.25% to 6.0%. Rep or ate is the rate at which RBI lends money to commercial banks. Consequently, the reverse rep or ate stands adjusted to 5.75 per. Reverse repo rate is the rate at which RBI borrows money from commercial banks within the country.
Now, the cost of borrowing for banks will be reduced, and they are expected to transfer the benefit to home loan borrowers. As and when the banks decide to transfer the benefit of reduced cost of borrowing to home loan borrowers, the new loanees will stand to gain from it.
The decision of the monetary policy committee (MPC) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving a medium-term target forth econsumer price index( C PI) inflation of 4%, while supporting growth.
Reduction of the repo rate reflects“the slightly accommodative stance that the MPC has taken as it agreed that headline inflation has come down significantly. While many inflation upside risks have not manifested themselves as yet, the MPC feels that inflation may trend up wards going forward, based on farm loan waivers, states passing on increased salaries and expected pressures on food inflation. The RBI remains more committed to keeping inflationary pressures under check,” says Anuj Puri, chairman, Anarock Property Consultants.
MPCinthirdbi-monthlymonetary policy statement, 2017-18, also observed, “With the real estate sector coming under the regulatory umbrella, new project launches may involve extended gestations and, along with the anticipated consolidation in the sector, may rest rain growth, with spillovers to construction and ancillary activities.”
“Thereis already enough surplus liquidity in the system and the policy change maynot result in agreater impact on real estate sentiment. However, it must be remembered that buyer sentiment has been impacted by a number of variables, including overall lack of afford ability in the larger cities and the slow down in IT/ITeS-driven employment. R ERA has also induced ago-slow in fresh launches, which means that there will be less fresh supply on the market.
Consequently, prices are unlikely to reduce further - and more than interest rates, it is property prices which affect buying decisions. Nevertheless, this monetary policy announcement sends out positive signals to global investors, who are already showing renewed interest in Indian residential real estate on account of the transparency reboot brought on by RERA and GST deployment,” says Puri.
Repo rate is lowest since 2010, and last repo rate cut came in October 2016. RBI had kept the repo rate unchanged at 6.25% in its bi monthly monetary policy in June. But at the time, home buyers were benefited by other positive decisions by the RBI. It had reduced the standard asset provisioning on housing loans to 0.25% (or ₹250 per lakh) from 0.4% (or ₹400 p er lakh ). It meant the reduction in amount of capital that banks have to set aside against home loans as security.
Central bank had increased the loan-to-value (LTV) ratio on loans between ₹30 lakh and ₹75 lakh to 80 percent, earlier it was be ₹75 lakh. The LT Vis the ratio of the loan given to the value of the property. The RBI also reduced the risk weightage on loans between ₹30 lakh and ₹75 lakh to 35 percent, as compared with a range of 35-50 percent earlier. For houses worth over ₹75 lakh, the risk weight is now 50% from earlier 75. Risk weights are used to calculate the minimum amount of capital that must be held by banks to reduce the risk of insolvency. Dip in risk weightage translates into banks having more money to lend, and lowered costs of lending.
Since the beginning of the year, banks are in the mode of reducing home loan interest rates. The last major home loan interest came in June when several private and public sector banks following the lead of the State Bank of India( SB I) reduced interest rates on home loans. An interest reduction by0.25% from 8.35% (the current lowest home loan interest rate) to 8.10% on a loan of ₹50 lakhwith15y ear tenure translates into savings of ₹726 per month for home loan borrower. Another indication that the borrowing rate for the home buyers will see reduction incoming days came after the SBI reduced interest rate on the saving bank accounts by 0 5%
Last major home loan interest came in June when many private and public sector banks reduced the interest rates on home loans.