Home loan interest set to rise on repo rate hike
NEW DELHI: A 50 bps increase in repo rate is set to pinch homebuyers as most banks will pass on the hike to external benchmark linked loans (EBLR) which are used for pricing retail loans. In June 2022, when the RBI had increased the repo rate by 40 bps, most banks had increased interest rate on home loans by 30-40 bps.
At present, the State Bank of India’s EBLR stands at 7.55%+CRP (credit risk premium). Interest on homes offered by most banks is now expected to touch 8% per annum, thus marking the end of cheap finance, one of the major factors that drove housing sales across the country since the onset of the Covid-19 pandemic.
The Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee (MPC) hiked the policy repo rate by 50 bps to 5.40% with immediate effect to combat rising inflation. A third in recent months, the RBI has hiked repo rate by 140 bps since May this year. Anuj Puri, Chairman – ANAROCK Group, said that the hike by 50 bps is definitely on the higher side, and home loan lending rates will now edge further into the red zone.
“This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors – rising home loan rates and construction costs – will impact residential sales that did reasonably well in the first half of 2022,” said Puri.
As per ANAROCK data, approximately 1.85 lakh units were sold in H1 2022 across the top 7 cities.
Shishir Baijal, the Chairman & Managing Director of real estate consultant Knight Frank India, said that with the cumulative rate hike until today, assuming complete transmission, a prospective home buyers’ affordability will shrink by around 11% i.e. from an ability of purchasing a house of Rs 1 crore value, this would shrink to Rs 89 lakh.
Explaining the rise in interest payment, Adhil Shetty, CEO, of Bankbazaar.com, said that people who borrowed at rock-bottom rates of 6.50% to 7.50% in the last two years will see their loan tenors increasing substantially as their interest rates rise.