Can Home Loan Interest Rates Go Down Further This Year?
Since January 2015, the Reserve Bank of India (RBI) has slashed the key policy rates by massive 200 basis points (bps), taking the repo rate to six per cent and the cash reserve ratio (CRR) to four per cent
What did it result in for homebuyers?
Home loan interest rates dropped from 9.3-9.5 per cent to 8.3-8.4 per cent per annum. This drop of 100 basis points in interest rates saves at least Rs 60 per month in EMI (equated monthly installment) per lakh of loan amount for a term of 20 years. That means, on a loan of Rs 25 lakh, one can save as much as Rs 1,500 a month.
Now the biggest question that comes to the fore: whether the home loan interest rates will go down further from this level? In our view, no.
The current levels are at record lows, and there is no point waiting for a further decline. There are several reasons why we believe so.
In fact, there are possibilities that the interest rates go a notch up a little bit. From January, several banks such as Axis Bank, Kotak Bank and IndusInd Bank have raised their benchmark marginal cost of funds-based lending rate (MCLR) by 5-10 basis points. This move alone gives a clear indication that there is no chance that home loans are going to cost even lesser.
Earlier in October 2017, the RBI had cut the statutory liquidity ratio (SLR) by 50 basis points to 19.5 percent. However, banks in India are already awash with liquidity and the cut in SLR did not mean much to their operations.
Rather, the banks have been reporting a weak growth in home loan consumption following the tumultuous phase in the real estate sector in India wherein on the one hand property buyers are in a wait-and-watch mode to see developers delivering the projects; the developers, on the other hand, are striving to align their operations with the new regulatory and tax regimes driven by the real estate regulatory Act and the Goods and Service Tax (GST).
For the past few quarters, the inflation rate is also under the range of 4-5 per cent, in line with the RBI/government target. All these factors, when put together, indicate that there is no reason why the home loan interest rates go down further from the current levels.
Even if we assume that there could be some more softening in the stance resulting in a cut of 25-50 basis points at the most, it does not make a difference for a homebuyer to wait for this remote possibility. Anyway, one can avail of balance transfer or negotiate with the bank in case the rates go down. So, it is advisable not to defer your home-buying plans solely in expectation of any cut in the interest rates.