The RBI did not change the repo rate, which gives home loan borrowers a reason to smile as interest rates continue to be at multi-year low.
In the backdrop of the spread of the Omicron variant, the Reserve Bank of India (RBI) has decided to keep the repo rates unchanged at 4 per cent and reverse repo rate at 3.35 per cent while maintaining an ‘accommodative’ policy stance. This is the tenth consecutive time that the RBI has maintained the status quo amid the current uncertainties for continued growth.
RBI repo rate has a direct influence on the home loan interest rate. When it lowers the repo rate, the banks’ cost of borrowing comes down and banks can pass on this benefit to customers.
“The fact that the repo rates remain ‘unchanged’ is good for home loan borrowers as the floating retail loan rates, which are directly linked to external benchmark repo rates, will continue at what are the lowest levels in the last two decades. A continuation of this low-interest rate regime supports the overall environment of affordability for some more time and is very welcome,” says Anuj Puri, Chairman of Anarock group.
In 2018, the RBI had directed banks to switch to an external lending benchmark, so that the borrowers could reap the benefits of policy transformation. Since October 2019, the banks have switched to the repo rate-linked lending regime. At present, the majority of the banks offer home loans that are linked to the RBI’s repo rate. So, borrowers can clearly see any changes in the repo rate reflected in the EMI outgo.
The currently low-interest rates on home loans are, however, likely to change. “While the window of opportunity for homebuyers to avail low-interest rates has been extended for some more time, it is unlikely to prevail for much longer--sooner or later, repo rates will rise,” says Puri.
At a time when the market was expecting a hike in reverse repo rate and change in the central bank’s stance to ‘neutral’ to be a precursor to future rate hikes, the ‘status quo’ comes as a breather for the real estate sector. “In the absence of specific demand-side interventions from the Budget 2022-23, prospective homebuyers can continue to benefit from lower home loan interest rates which are here to stay for now,” says Ramesh Nair, CEO-India and managing director- market development, Asia at Colliers.
The majority of the lenders are now offering home loans starting at an interest rate of around 6.5 per cent. Some of the lenders offering home loan rates are as follows: State Bank of India (6.65 per cent); HDFC (6.7 per cent); Bank of Baroda (6.5 per cent); and ICICI Bank (6.7 per cent), as per information available on the lenders’ websites. These rates are indicative and the rates that the lender offers will depend on various factors.
“After a disappointing Budget from a real estate perspective, the status quo on policy rates was least expected. The accommodative stance must continue for some time because the prevailing interest rate of below 7 per cent per annum on home loans is a major factor for home buyers while deciding to buy a home,” says Saransh Trehan, MD, Trehan Group.
Existing borrowers who have taken loans before October 2019, may continue with their loans linked to Marginal Cost of Funds-Based Lending Rate (MCLR) or can switch to Repo Linked Lending Rate (RLLR). But before switching, one should evaluate the cost benefit. One could wait for a few months, and try to get a clear picture of the trend of interest rate movement. You could choose a lender that offers a low rate of interest based on your profile.