RBI hikes rates, sets new limit on home loans
Purchasing your dream home is going to get a little more difficult as the Reserve Bank of India has signalled its unhappiness with soaring property prices. On Tuesday, the RBI set a limit on home loans, limiting the loan amount to 80 per cent of the property’s value. It means that if you buy a property worth `10 lakhs, you will not be able to
get a loan of more than `8 lakhs. India’s central banker also increased the amount of provisioning that banks and home finance companies need to create for loans given at “teaser” rates.
Besides these measures, the Reserve Bank also increased its repo and reverse repo rates — the rate at which banks can borrow from the RBI, and vice versa — by a quarter of one per cent. But it is the measures taken on home loans that will affect your life the most.
Industry sources say that most banks and home finance companies usually offer home loans up to 85 per cent of the property value. However, in many cases, the loan amount can also exceed this internal benchmark. The extra amount is sometimes justified as “furnishing cost” or “stamp duty”. The willingness of banks to lend higher amounts is being seen as one of the major reasons why builders have been increasing real estate prices. A limit here would affect the purchasing power of consumers and could well force builders to cut back.
The RBI also decided to tackle the banks that have persisted with “teaser” rates. It increased the standard asset provisioning by commercial banks for all housing loans with teaser rates to two per cent. This will increase the cost for banks offering teaser rates but it is unlikely to affect rates in the short run.
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