Dec. 1: If you were planning to purchase a house, the loan is going to cost you a little more from now on. On Monday, the two leading players in home finance — ICICI Bank and HDFC —withdrew their teaser rate schemes.
Under this scheme, a borrower pays a lower interest rate for the first couple of years in the loan’s duration. This effectively means that a borrower will pay an additional 0.75-1 per cent interest on an outstanding loan for the first year.
The rise means an additional payout of Rs 40-50/month for long term loans on an outstanding loan of Rs 1 lakh. As of now, State Bank of India (SBI) and Punjab National Bank are still offering teaser rates till the end of December. SBI hasn’t yet decided whether it wants to continue the scheme after that date.
Teaser rate schemes have proven to be very popular with borrowers, but had increasingly come in the cross hairs for the regulator. The scheme was the brainchild of SBI and sources say they may want to cling on to it, despite the opposition from the Reserve Bank of India. The SBI chairman, Mr O.P.Bhatt, says his customers are satisfied.
Meanwhile, the RBI governor had in the November 2, credit policy said that “this practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate which is higher than the rate applicable in the initial years, becomes effective.”
He said that they had observed that many banks do not take into account the repaying capacity of the borrower at the normal lending rates. In an attempt to discourage teaser rates, he increased the standard asset provisioning by commercial banks for all such loans to 2 per cent.
While higher rates are bad news for prospective home buyers, the real issue for them is affordability – solely dictated by property prices that have risen very sharply in the past few months.