crease liquidity in the system in its latest credit policy announcement earlier this week.Not only this, the central bank has changed the way the home loan
loan rate was fixed by banks with the home loan rate now linked to
deposits rate.The new system is called MCLR (Marginal cost of funds based lending rate)–RBI governor Raghuram Rajan indicated that the MCLR has resulted in close to 20-25 basis points cut in the effective lending rates.
Prior to this, the central government cut the interest rate on small savings by a quarter of a percentage point, to around half a percentage point. This will enable banks to lower their deposits rates by at least the same margin in the times to come, which will lead to lowering of their cost of fund and, so, the MCLR, which will be transmitted to lowering of the lending rate.
Bankers say that if the inflation remains under control, home loan rates could be down to around 9% by September, from the current level of around 9.75%. This will translate to lowering of EMI by around Rs 2,500 on a home loan of Rs 50 lakh for 20 years–from Rs 47,500 to around Rs 45,000.
With the income tax exemption in the form of a deduction of up to Rs 2 lakh against the interest payment of normal home loan, and an additional deduction of Rs 50,000 against the first home loan if one buys a house of up to Rs 50 lakh, the net cost of fund will come down to less than 7%, if the borrower’s income falls in the highest taxable income bracket of 30%.
The RBI governor stated that the central bank would like to maintain sufficient liquidity in the system. This would increase competition among bankers to lend to the sector where the non-performing loan is minimum, he felt. At a time when many sectors like steel, cement, and other commodities sectors are reeling under the slowdown, banks are facing huge problems of default by borrowers. But the non-performing loan in the real estate sector is one of the lowest.
In this scenario, bankers say that if adequate funds are available with them, they will lend to the housing sector.
This could provide a good opportunity for homebuyers.As housing prices have also hit the lowest level in the last five years, lowering of rates could bring houses of choice within their affordable range.
Developers and consultants say that this could help revive the sector, which is facing one of the longest slowdowns in the last couple of decades. On the whole, this could be a good time for end users to buy–more so with the auspicious festive season of Navaratra commencing on Friday.