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

Hindustan Times (Chandigarh) - Estates - - ESTATE - HT Es­tates Cor­re­spon­dent n ht­es­tates@hin­dus­tan­times.com

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%

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Last ma­jor home loan in­ter­est came in June when many pri­vate and pub­lic sec­tor banks re­duced the in­ter­est rates on home loans.

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