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Can homebuyers handle another RBI rate hike? EMIs for home loans could become more expensive

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When RBI raises the repo rate, it becomes costly for banks to borrow money from the central bank. Just as a borrower pays interest at a prescribed rate to a bank on their loans, banks also pay interest on their loans from RBI. However, this depends on the balance sheet of the bank and the funds requirements. In any case, with a rise in rates, the cost of funds should also increase. To pass on the impact of a rise in repo rates, banks are raising interest rates on term loans such as home loans, personal loans, car loans, and education loans, among others.

In less than six months of FY23, RBI raised the repo rate by 140 basis points, bringing the benchmark rate to 5.4% currently. This is done to combat soaring inflation which is at a multi-year high at 7% and has remained above the RBI’s upper tolerance limit for the eighth consecutive month. Banks, NBFCs and others also raised their benchmark lending rates following the RBI’s rising rate trend. The majority of bank lending indices are linked to the movement of the RBI repo rate. Therefore, if there is a reduction in the repo rate, loan EMIs become cheaper and vice versa.

What will happen to home buyers and home loans if RBI raises the repo rate for the fourth time?

Aditya Damani, Founder and CEO of Credit Fair, said: “The RBI rate hike is widely expected and a hike of up to 50 basis points is not expected to affect demand for consumer and personal loans as it is more motivated by the economic environment”.

In Damani’s view, there could be a minor impact on the demand for long-term loans like home loans and rent discounting. Demand for non-food credit is growing rapidly, driving down excess liquidity in the banking system, but bank deposit rates have yet to rise significantly. The cost of funds for NBFCs and fintechs, however, could increase due to rising benchmark rates. Depositors might consider fixed income alternatives to protect their portfolios against rising inflation, as deposit rates are not rising.

Meanwhile, Ramani Sastri – Chairman & MD, Sterling Developers believes it would be ideal for the central bank to maintain ‘business as usual’ as this would stimulate demand.

According to Sastri, the economy as a whole is doing well and all growth indices are positive. The renewed confidence of the markets in a context of acceleration of economic activities makes this festive season more attractive.

Sterling Developers MD added: “If another rate hike takes place, mortgage interest rates could enter the red zone, causing near-term turbulence in aggregate housing demand, particularly when buyers are likely to invest in their dream home during the current holiday season. . Recent consecutive increases in repo rates have already increased buyers’ overall cost of acquisition. The real estate sector has started to see a healthy recovery in major real estate markets, driven primarily by end users, and this should be encouraged. It would therefore be ideal for the apex bank to maintain the status quo as this would stimulate demand across the economy.”

“We remain positive and hope the government will continue to provide the necessary support the industry needs,” Sastri added.

However, Ravi Subramanian, MD and CEO, Shriram Housing Finance, said: “In August, headline retail inflation was above the Reserve Bank of India. The central bank should continue to maintain the balance. between growth and inflation. We expect the RBI’s previous guidance to continue, driving the Repo up 35-50bps at the current MPC meeting. For the housing finance sector, the transmission of rates to end borrowers may take place with a lag. The real estate sector is in the midst of a recovery in demand, and we hope rate changes will be calibrated so as not to affect positive market sentiment. is robust post-pandemic and we believe the sector would be able to weather this rate hike.”

Despite a 1.4% rise in the repo rate over the past three policies, bank credit has seen healthy lending growth. The demand for home loans has also remained stable so far.

In the June quarter of 2022, scheduled commercial bank (SCB) credit growth stood at 14%, compared to 10.7% in the previous quarter and only 5.8% in the first quarter of last year.

During the first quarter of FY23, the personal lending segment continued to lead credit expansion and recorded 20.8% year-on-year, while bank lending to industry regained strength with growth of 7.2%. Private sector banks continued to record higher credit growth than public sector banks. The share of private bankers in total credit increased to 38% in Q1FY23, while the share of PSBs stood at 47.8%.

The latest RBI data revealed that after declining for ten consecutive quarters, the weighted average lending rate (WALR) on outstanding credit increased by 21 basis points (bps) in the first quarter of 2022-23. : the increase was significant for personal loans (31 bps) and finance (36 basis points).

Here are some of the home loans offered by major banks like SBI, HDFC Bank and ICICI Bank:

SBI mortgage rates

The nation’s largest lender offers home loan rates based on borrowers’ credit scores. The rates range from 8.05% to 8.55%.

The lowest rate of 8.05% is levied on borrowers with a CIBIL score greater than or equal to 800, while the rate is 8.25% on credit scores between 700-749 and 100-200. The highest rate is 8.55% levied on scores 550-649, while the rate is 8.15% and 8.35% on credit scores between 750-799 and 650-699 respectively.

These are rates on regular home loans.

SBI also offers a 0.05% concession to female borrowers subject to a minimum ERR of 8.05%.

Home loans ICICI Bank

ICICI Bank was among the first banks to revise their benchmark lending rates right after RBI raised its repo rate in the last three policies.

Currently, ICICI Bank is offering 8.10% to 8.85% to salaried borrowers on home loans up to 35 lakh and above 30 lakh to 75 million. The rate is between 8.10% and 8.95% on home loans above 75 million.

For self-employed borrowers, the interest rate is 8.20% to 9% on home loans up to 35 lakh and above 35,000,000 75 million. Meanwhile, the above home loans 75 lakh has interest rates ranging from 8.20% to 9.10%.

HDFC Bank Home Loans

For salaried borrowers, the bank offers interest rates of 8.10% to 8.50% on loans up to 30 lakh, while the rate is between 8.35% and 8.75% on home loans from 30.01 lakh to 75 million. The rate is 8.45% to 8.85% on senior home loans 75 million. For self-employed female borrowers, home loan rates range from 8.20% to 9%.

For the other employees category, HDFC Bank grants 8.15% to 8.55% on home loans up to 30 lakh, while rates vary from 8.40% to 8.80% on home loans of 30.01 lakh to 75 lakh, and rates are 8.50% to 8.90% on above loans 75 million. For self-employed workers in this category, interest rates range from 8.25% to 9.05%.

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