No Rate Cut But Still A Great Time To Take A Home Loan

India’s Monetary Policy Committee may have kept rates on hold at its meet last week but home loan rates continue to be at their lowest in at least 15 years, pulled down by a sharp cuts in benchmark policy rates in India and a recent change in regulations.The Reserve Bank of India has cut policy rates by 115 basis points since the Covid crisis began in March and lenders, now mandated to offer external benchmark linked home loans, have passed those on fully to borrowers.In October 2019, the RBI said that banks must offer floating rate retail loans linked to an external benchmark such as the RBI’s repo rate or the treasury bill rates. Since then, rates have fallen sharply allowing retail borrowers to benefit. Those who had switched their existing loans from a MCLR-linked rate to an external benchmark-linked rate and those looking to take fresh loans have seen the benefits of the recent drop in interest costs..What Rates Look Like Right NowLenders are offering home loans at rates as low as 6.65% with the final interest cost depending on the credit profile of a borrower.SBI’s external benchmark rate stands at 6.65%. Its one-year MCLR stands at 7%, having dropped 90 basis points since the start of the year. Union Bank of India, Punjab National Bank and Bank of Baroda and other state-run banks have also reduced their average home loan rate to around 6.7% to 6.85%, according to information on loan aggregator BankBazaar.Private sector lender ICICI Bank is offering external benchmark linked rates as low as 6.95%. Other banks offer higher rates. Home loan rates at Axis Bank start from 7.40%, while Axis Bank charges 7.75% and more, rates published on the loan aggregator’s site show..According to Adhil Shetty, chief executive officer at BankBazaar, each time there is a revision in the external benchmark linked rate, the interest rates change. “This means that the rates are very responsive to changes, even more so than the MCLR. We have actually seen this happen in real time as banks have reduced interest rates in sync with the RBI cutting the repo rate,” he said.Shetty added that this is especially attractive to customers in today’s situation where interest rates are steadily falling. To be sure, when the interest rate cycle reverses, customers will see their home loan rates go up commensurately..Are Consumers Buying Homes?While rates have fallen sharply, the drop comes at a time when economic activity and consumer sentiment have fallen sharply due to the Covid crisis.Due to the nationwide lockdown imposed in April and May this year, loan disbursements specifically towards home loans declined significantly to around 10-15% of normal levels, said industry executives.A senior banker with a state owned bank, speaking on condition of anonymity, said that inquiries dropped by 70% to 80% in April and May but have since rebounded as prices in some markets may have dropped and loan rates are low.“June and July were very strong months in terms of demand for home-loans, though the supply-side was lopsided since banks are more comfortable lending to the salaried segment compared to the affordable housing segment,” said Gaurav Anand, chief executive officer, Namaste Credit, a lending platform. The majority of inquiries for home-loans mainly came from the higher-end segment of borrowers compared to lower-income borrowers who borrow affordable housing loans, he said.Ashish Singhal, Managing Director, Experian Credit Information Company of India Pvt. Ltd., said total inquiries were down in April and May, and in June loan inquiries were back to around 50% of normal inquiry levels in March. Home loans as a percentage of all personal loan inquiries were much higher in June compared to January. I think this was driven partly by pent-up demand because registrations could not happen earlier, softening of property prices and low home loan rates since banks have linked the interest rate to external benchmarks,” he said..Good Time For Existing Borrowers To SwitchWith the wedge between new and existing rates widening, consumers may have more reason to switch their loans from MCLR to external benchmark.According to bankers, while some customers are switching loans, there is no spike in such requests yet.“Switching a home-loan from MCLR to EBLR has been taking place on a regular basis since last year, but I do not think there has been a phenomenal movement in the last few months,” said CS Setty, managing director at State Bank of India. The senior banker quoted above also said that they have received inquiries from borrowers to switch their outstanding home-loan balances from MCLR-based loans to EBLR. This has also helped the bank grow its lending book to a small extent during the the last few months, this banker said.Data on the total quantum of loans linked to external benchmarks is not available..BQ Big Decisions: How To View RBI’s Floating Rate Bond As Real Interest Rates Fall

No Rate Cut But Still A Great Time To Take A Home Loan

For the first time in years, new and some existing home loan customers have seen a direct benefit of policy rate cuts.

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