Borrowers cautious on new home loans

Bankers and market experts said the March quarter has been slower than before, as rising interest rates made potential borrowers wary. The Reserve Bank of India (RBI) has raised its repo rate – the benchmark for most home loans taken since October 2019 – by 250 basis points (bps) since May last year to quell rising prices.

The regulator is expected to raise rates by another 25 bps when its rate-setting committee meets later this week, which would make loans pricier.

“Customers are anxious about the rate increase and are postponing their decision to buy new homes,” a public sector bank official said on condition of anonymity.

Top lenders are engaged in a rate war to lure borrowers. While State Bank of India (SBI) offered a special home loan rate of 8.5% for customers with credit scores above 750, mortgage lender Housing Development Finance Corp. (HDFC) offered loans at 8.7% to those with a credit score above 760. Bank of Baroda had slashed home loan rates by 40 basis points to 8.5%, and waived the processing charges on such loans for a limited time.

Lenders said they are getting a lot of requests to extend special home loan schemes introduced in March.

Those who had taken home loans at 6.5% when interest rates were at their decadal lows after the pandemic outbreak are tackling surging monthly repayments or vast increases in loan tenures, sometimes stretching for over half a century.

“Banks have taken over — refinanced — home loans from one another as some were offering lower rates. Banks are targeting 14-15% growth (in home loans) in FY24,” the banker said, adding lenders are basing their demand projection on the amount of unsold inventory, especially in smaller towns where numerous projects are under construction.

Andromeda Marketing, a top loan distributor, told analysts at Emkay Global Financial Services in a recent call that retail loan disbursements in March were slightly below expectations.

According to Andromeda chief executive Raoul Kapoor, this was because mortgages fell due to the sharp increase in home loan rates, Emkay said in a report on 29 March.

“Most public sector banks, including SBI and BoB, are looking to drive growth mainly via mortgages and, thus, are looking at offering lower rates. Add to that, HDFC Bank post-merger in a quarter or so should come up with vigour, thereby increasing competition for other players,” the Emkay report said.

Analysts at Emkay said that affordable housing is facing the brunt of rate hikes, and companies operating in this segment are struggling to replicate their home market success elsewhere.

While outstanding priority sector loans rose 0.4% so far this fiscal up to February, total housing loans – including priority sector – grew 13.4% in the same period, according to RBI data.

The regulator defines priority sector housing loans as those up to ₹35 lakh in metros and up to ₹25 lakh in other locations meant to construct or buy a house.

According to data from real estate services company Anarock, around 113,770 homes were sold in the January-March period across the top seven cities. However, Anuj Puri, chairman of Anarock Group, said that persistent inflation concerns, along with another possible rate hike by the RBI in the near future, could dent the housing market’s growth trajectory in the next two quarters.