Understand how the increase in home loan rates will affect the housing market.

Posted by Sarita Yadav on June 17th, 2022

Following an off-cycle repo rate rise by the RBI in May 2022, banks and housing finance businesses recently raised home loan interest rates, just as the real estate market was getting traction after a couple of years.

Almost all banks and HFCs, from HDFC Ltd to SBI, as well as from LIC Housing Finance to PNB, have revised their lending rates upwards in the last week, which does not appear to be a progressive indicator for the Indian housing industry because this will ultimately affect the overall acquisition cost for prospective homebuyers and may dampen residential sales to some extent.

Even if interest rates for house loans increase only a little, this will cause a substantial psychological barrier for homebuyers. It would lower the buyer's enthusiasm, especially those looking for properties through affordable housing organizations such as Shubham Housing Finance.

According to industry experts, even a 1% rise in interest rates on a home loans may reduce home buying affordability by 7.4%.

The fear is palpable in the real estat e sector that has been grappling with slower sales for the past couple of years. With homebuyers attempting to shake off the bad effects of the ongoing epidemic by getting the benefit of historically affordable housing costs as well as historically low home loan interest rates, the banks' decision would definitely have a significant impact on buyer attitudes. Additionally, it indicates that the days of affordable home loan interest rates are ended.

Some real estate developers believe that the current wave of interest rate rises might have been postponed for a while. At the very least, it might have waited for the housing industry to pass on the benefits of lower petrol costs and lower iron prices (due to the increase in export tariff) to buyers. The shift will have an impact on the business and retail sectors as well.

The current hike in home loan interest rates by banks will surely convey to home buyers that interest rates are only going to go northwards. Contrary to the popular perception that any such increase only affects the affordable housing segment, the move, according to us, will also leave a big impact in the big-ticket luxury segment that involves huge sum of money, hence higher EMIs and higher interest amount.