No material impact of rate hike on demand for home loans: Data

NEW DELHI: Interest rates do not seem to have a material bearing on people who buy their dream residential properties on borrowed funds as the home loan outstanding of banks almost doubled to Rs 16.85 lakh crore in the last five years, shows Reserve Bank data.

Even in the first five months of the current fiscal, home loan outstanding of banks has clocked double-digit growth, despite the Reserve Bank raising the key interest rate thrice during this period by a whopping 140 basis points (bps), which led to a hike in the home loan rate. Another hike in repo rate was effected in September by 50 bps.

As per the RBI data, the housing loan outstanding of the banks was at Rs 8,60,086 crore at the end of fiscal 2016-17, and the same has increased to Rs 16,84,424 crore at the end of 2021-22. Experts from banking and real estate industry are of the opinion that though interest rates are important, they do not deter a home buyer as the decision is based on current income and future prospects.

Also people are becoming increasingly aware that interest rates would move up and down during the life cycle of a loan, which is typically for around 15 years.

HT Solanki, General Manager Mortgages and Other Retail Assets at Bank of Baroda, said affordability is an important factor since home buying typically takes place on borrowed funds.

“However, home loans are also a long-duration product and customers do expect changes in interest rates during the tenure of the loan. Further, the average pay increases in the range of 8-12 per cent in the country also help to mitigate the impact of a rate increase to a certain extent,” he said.

The RBI data revealed that banks’ housing loan outstanding increased in the range of 13.7 to 16.4 per cent year-on-year in each of the first five month of the current financial year. The outstanding at end-August 2022, has risen to Rs 17.85 lakh crore.

On the rising interest rates, HDFC MD Renu Sud Karnad said: “I don’t think interest rate hike will have a material impact on demand for home loans”.

The senior banker noted that a house purchase unlike other products is planned after a lot of due diligence within the family.

Housing loans carry a floating interest rate and unlike a car or a consumer durable loan, they are long-term generally for 12 to 15 years, she said.