No significant impact of rate hike on demand for home loans: RBI data
Interest rates do not appear to have a big impact on people buying their dream residential properties with borrowed funds, as outstanding mortgages from banks nearly doubled to Rs 16.85 lakh crore as of over the past five years, according to Reserve Bank data.
Even in the first five months of the current fiscal year, banks’ outstanding mortgage loans grew by double digits, despite the Reserve Bank raising the key interest rate three times during the year. this period by a whopping 140 basis points (bps), which led to a rise in the mortgage rate.
A further increase in the repo rate was made in September by 50 basis points.
According to RBI data, the outstanding housing loans of banks was Rs 8,60,086 crore at the end of FY 2016-17, and it increased to Rs 16,84,424 crore at the end of 2021- 22.
Banking and real estate industry experts are of the opinion that although interest rates are important, they do not deter a home buyer as the decision is based on current income and future prospects.
Additionally, people are increasingly aware that interest rates would rise and fall over the life of a loan, which typically lasts around 15 years.
Commenting on the increase in banks’ loan portfolio, HT Solanki, Managing Director of Mortgages and Other Retail Assets at Bank of Baroda, said affordability is an important factor since buying a house is usually done on borrowed funds.
“However, home loans are also a long term product and customers expect interest rate fluctuations over the life of the loan. In addition, average salary increases of around 8-12% in the country are also helping to mitigate the impact of a rate hike to some extent,” he said.
RBI data revealed that banks’ outstanding housing loans grew in the range of 13.7-16.4% year-on-year in each of the first five months of the current financial year.
The outstanding amount at the end of August 2022 increased to Rs 17.85 lakh crore.
Regarding the rise in interest rates, HDFC Managing Director Renu Sud Karnad said, “I don’t think the rise in interest rates will have a significant impact on the demand for housing loans.”
The Principal Banker noted that a home purchase unlike other proceeds is expected after much due diligence within the family.
Home loans carry a variable interest rate and unlike a car or durable consumer loan, they are long-term typically 12 to 15 years, she said.
“And therefore, the increase in interest rates has a relatively less impact on cash flow. Usually, 2-3 interest rate cycles occur over the life of the loan of 12-15 years. So, borrowers understand that interest rates can also go down over such a long term of the loan,” explained Sud.
The country’s largest mortgage lender, HDFC, is in the process of merging with HDFC Bank.
Karnad and Solanki, along with real estate agents, said housing demand remained healthy and residential property sales have seen a strong recovery over the past 12 to 15 months.
The Chief Economist of real estate consultant JLL India, Samantak Das, said that as of March 2016, the interest rate on home loans was on a downward trend from an average of 9.45% at 6.95% until April 2022.
This was in line with the RBI policy rate (repo) which was on a downward trajectory from 6.25% in March 2017 to 4% in March 2022.
Noting that the RBI has raised the repo rate by 190 basis points in the current financial year, Das said the pass-through to the home loan interest rate is in the range of 140 to 150 basis points. base rate, bringing the mortgage rate to approximately 8.85%.
“However, home sales are still robust and could reach a ten-year high by the end of 2022. This may be attributable to strong festive demand coupled with stable prices and a relatively low interest rate on home loans. lower from the 10-11 percent peak witnessed 8-10 years ago,” he said.
Das, however, warned that the continued rise in mortgage interest rates and EMI could act as a sentiment disruptor.
Recently, real estate consultant Anarock, which is one of the leading housing brokerage firms, reported that home sales rose 87% from January to September in seven cities to 2,72,709 units and exceeded transactions. recorded over the entire pre-COVID 2019 year.
The consultant tracks primary sales for seven major cities – Delhi-NCR, Mumbai Metropolitan Region (MMR), Chennai, Kolkata, Bengaluru, Hyderabad and Pune.
Sales amounted to 1,45,651 units during the January-September 2021 period.
The figure for January to September of this calendar year is higher than the 2,61,358 units sold for the whole of 2019.
Residential property sales fell to 1,38,344 units in 2020 due to the negative impact of COVID-19 induced closures.
India’s main housing market revived last year on pent-up demand and sales reached 2,36,516 units in 2021. The strong momentum continued through September this year.
Real estate agents are hoping the sales momentum will continue despite rising mortgage rates. Real estate experts are betting on pent-up and festive demand to cross.
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