RBI repo rate hike: Not much of an impact on home loan borrower

Mixed views were expressed by housing finance companies and real estate players on the impact of Reserve Bank of India’s (RBI) decision to hike the repo rate by 50 basis points to 5.90 per cent.

They also said the hike in the equated monthly instalments (EMI) for a borrower may be about 8-15 per cent.

“Though the RBI has been increasing the repo rate (RBI’s lending rate to the banks) recently, not all the housing finance companies have passed the rate hike to their borrowers. Further the repo rate hikes are not passed on soon after the RBI announces the same,” Alok Aggarwal, Managing Director, National Trust Housing Finance Ltd, told IANS.

The company is in the affordable housing segment.

“It is the fourth successive rate hike in five months. The impact o f these successive hikes is about a 15 per cent increase on EMIs on a 25 year loan. While the rates are now nearly on par with pre-pandemic levels, this is a tipping point beyond which the demand will cool off,” Lakshminarayanan Duraiswamy, Managing Director, Sundaram Home Finance, told IANS.

“Our lending rates had gone up by 120 bps in the last five months compared to the 140 bps increase in bank rates,” he added.

Aggarwal said there could be 15 per cent hike in EMI if all the rate hike has been passed on to the borrowers.

“Home loans are generally linked to floating interest rates with longer tenures. In most cases EMI’s will remain the same with the duration of loan getting adjusted,” Atul Goyal, CFO, Brigade Group said.

According to Samantak Das, Chief Economist and Head of research and REIS, JLL, India, since April 2022, RBI increased the repo rate by 140 bps, while home loan rates moved up by an average of 80 bps, more than 50 per cent has been transmitted to date.

“Taking a cue from the previous transmission, we expect the home lo an interest rates to go up in the range of 25-30 bps. However, the interest rate after this hike would be still below what the home buyers had to pay 8 to 9 years ago, more than 10 per cent. It is likely that banks might also delay the transmission, taking into account higher housing demand during the festive season,” Das added.

According to Das, the revised home loan EMI would increase by an average of 8-9 per cent as compared to six months back.

On the chances of higher loan defaults owing to increasing loan rates Aggarwal replied in negative.

“We don’t see any default happening in the affordable housing segment,” he said.

Duraiswamy says: “We don’t expect any repayment issues as of now. We believe the income levels are nearly back to pre-covid levels to buffer these rate increases.”

Replying in negative on the possible impact on the home purchases, Aggarwal said: “The real estate players are now offering various promotional deals and hence the rate hikes will not have any major impact on the home purchase decisions.”

“In the short term, there may be some reaction in terms of re-assessing the purchase decision, tweaking the size of purchase (3BHK/2BHK etc.) But I am confident that in the long term, this will level up and demand will remain strong,” Duraiswamy said.

“We believe that home loan interest rates inching towards nine per cent and above may result in moderation of housing sales growth in the medium term, especially post the current festive season,” Das said.

As to the increase in cost of funds to the finance companies Aggarwal said the repricing for them will happen on a particular date and not immediately.

“It will have a mixed impact,” he said.

Sudaram Home Finance’s Duraiswamy said the interest rates on fixed deposits were increased twice.

“Those have had a positive impact on the depositors and we have had a solid inflow in recent months since the rate hike. We will continue to review the FD rates based on the market situation,” Duraiswamy added.

(Venkatachari Jagannathan can be reached at v.jagannathan@ians.in)

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