Housing loan in India: The Government of India has extended the lower risk weightage on housing loan by one year from 31st March 2022 to 31st March 2023. The Reserve Bank of India (RBI) made an announcement in this regard on Friday while speaking on the RBI Monetary Policy meeting outcome. The Central Bank of India said that the move aims to boost credit flow to the real estate sector. This means credit flow for housing sector will remain smooth as more funds will be available at banks for home loan disbursal.
Here we list out top 5 takeaways for home loan borrowers from this RBI’s move:
1] Ease of home loan availability: Highlighting the benefit of low risk weightage on home loans, RBI Governor Shaktikanta Das said that the move means requirement of capital provision for banks would come down and it would ensure more credit is available to borrowers, particularly for high-end properties.
2] Rise in home loan lending: The RBI Governor went on to add that enable Indian banks lend more to individual homebuyers without feeling the stress on their balance sheets. In other words, it would help lenders on capital adequacy front and enable them to provide more home loans, a win win situation for the new borrowers and the housing sector.
3] Impact on home loan EMI: As the RBI has kept key rates unchanged, it simply mean that low home loan interest rate regime would continue further that means home loan borrowers won’t have to pay higher monthly EMI as home loan interest rates at various banks are expected to maintain status quo.
‘The real estate industry had been gearing up for an increase in the repo rates, and the fact that this has not happened is obviously positive for home loan borrowers,” said Anuj Puri, Chairman at ANAROCK Group.
4] Status quo on house property prices: After RBI maintaining status quo on key interest rates and extending lower weightage on housing loan by one more year, probability of developers passing on the rising input costs to the homebuyers have come down. Now, builders may not increase the house property prices as the RBI’s move may boost the confidence of homebuyers. So, home loan EMI of the new borrowers are expected to remain at lower levels in the wake of no rise in house property prices.
Rahul Pande – Director, Justo Realfintech Pvt Ltd said, “The move by the RBI to maintain a status quo was on expected lines due to the growing uncertainties in the market. Lower home loan interest rate was one of the major factors for pushing real estate sales in the last two years of the pandemic. The decision will further help boost the confidence of new homebuyers, who would still want to avail the benefits of reduced interest rates before the developers pass on the additional burden of input costs to the homebuyers.”
5] Food for fixed home loan interest rate: As home loan interest rates are at lowest decadal levels, chances of banks raising home loan interest rate are high. So, it’s an opportunity for the home buyers to buy their dream home in current lowest home loan interest rate regime choosing fixed home loan interest rate.
Speaking on the matter; SEBI registered tax and investment expert Jitendra Solanki said, “Due to lowest home loan interest rate regime, most of the banks are not offering fixed home loan interest rate on entire tenure but for a certain period say from one year to 5 years. My suggestion to new home loan borrowers is to go for whatever fixed home loan interest rate is being offered by the banks as housing loan interest rate would either remain at current levels or would go northward in upcoming quarters.”
Advising new home loan borrowers to opt for a fixed home loan interest rate; Ashish Jain, Managing Director, Star HFL said, “Home borrowers having floating rate loans should grace for increase in rate of interest, consequently resulting in either increase in EMI or in loan tenure. One can consider the pros and cons of shifting to fixed rate regime after careful consideration on cost-benefit post scanning the industry offerings.”
The Reserve Bank had in October 2020 rationalized the risk weights for individual housing loans by linking them only with loan to value (LTV) ratios for all new housing loan.