Home loans may cost more

Home loans may cost more
DEV CHATTERJEE

MUMBAI, AUG 11: Housing finance companies (HFCs) are adopting a wait-and-watch approach towards increasing the interest rates on home loans citing `increased competition' and fewer customers as the prime reasons.

``The interest will have to go up as the prime lending rates of most of the banks have shot up. Everyone is waiting for the competitor to take the first step,'' says a Housing Development Finance Corporation (HDFC) official.

Term lending institution ICICI, a late entrant into the housing finance segment, is also awaiting for the market leader HDFC to take the first step. ``We are reviewing the interest rate scenario... a hike cannot to be ruled out,'' a top official said. ICICI has adopted an aggressive lending rate regime by providing lowest interest among the HFCs at the rate of 11.25 per cent for a five-year loan.

The RBI has recently increased its bank rate by one per cent and cash reserve ratio by 50 basis points. This has led to all the banks increasing their lending rates by 50 basis points to 75 basis points. HFCs are now looking at the option of increasing rates as their margins are under pressure due to low interest rates and a lacklustre real estate market.

``The real estate market is not showing any signs of going up. If interest rates on home loans are increased... many fence-sitting buyers will further postpone their purchases,'' says a real estate industry analyst. ``But in order to make money, HFCs will have to increase their interest rates,'' he said.

The real estate industry, which was struggling with a crippling recession for the last four years, will witness fewer transactions as buyers will go into hibernation again, fear industry analysts. With leader State Bank of India also hiking its PLR, the rise in interest rates is expected to gather momentum.

SBI lends home loan customers at the rate of 12.5 per cent for a 5 lakh loans which is at its all-time low to entice customers. ``With the interest rates hardening up and rupee falling to new low, the rate hike in home loans is inevitable... it's the question of when instead of will,'' says an SBI official.

With the frequent movement in the interest rate regime, analysts say the present interest rates are the best and in the near future it will only go in the upward direction.