Lenders lower rates as home loan growth dips

State Bank of India (SBI), for instance, is offering a home loan rate of 8.5% for customers with a credit score of above 750. Similarly, Housing Development Finance Corp. (HDFC) is offering 8.7% to customers with a credit score of above 760. Last week, Bank of Baroda slashed home loan rates by 40 basis points to 8.5% and waived the processing charges on such loans.

Bankers expect the new rates will help boost home loan growth with competition increasing in a rising interest rate scenario. Since May 2022, RBI has raised interest rates by 250 basis points. Home loan borrowers, who had taken loans at 6.5% earlier this fiscal year, have seen their borrowing costs increase to 9%. Although the impact of rising costs of funds on loan growth has not yet been felt, bankers said the rate of growth has slowed. “The rush for home loans seen during the festive season tapers down in the first 2-3 months. In March, there is growth. Many people come to buy a house or take a loan and the benefit of income tax. During March, we can expect 9-10% growth over the December quarter," said Prakash Chandra Kandpal, deputy managing director of SBI.

“The market is experiencing a little less exuberance. It’s not a slowdown. Extra demand, which was there, has normalized. For a floating-rate loan, the interest rate will go up and down from time to time. So, where interest rates are while taking a loan is not very important. If it is high, it will become low at some other point in time. It’s not as if your long-term demand will get impacted because of interest rates," said a senior official at a housing finance company.

Recent RBI data showed a month-on-month fall in the mortgage book, including priority sector lending (PSL) in absolute terms, while the growth rate has moderated to 15.4% from a year ago at the end of January from 16% at December-end.

“Although the correlation between the rates and mortgage growth has not been very strong in the past, our discussions with Andromeda (the largest direct selling agent) suggest that rate hikes coupled with rising property prices may have some impact on the pace of mortgage growth (which will be more visible post-March). Some large real estate players in metros and larger cities are offering subvention to reduce the interest burden on customers, but that may not be enough to completely offset the impact of the rate hike," Emkay Global Financial Services said in a report on 10 March. Real estate players said the slowdown in the rate of home loan growth would translate into a slowdown in real estate demand with a lag of four months. So, one could get a clear picture only after the March quarter. That said, they said that the real impact of the rate hikes on real estate prices could be only 5-8% as most of the input cost increase has been absorbed by the developers. “Demand is pretty strong, but demand growth is coming down. There is no de-growth," Anuj Puri, chairman of Anarock group, said. “Mortgage rates are one of the key factors for homebuyers and, if they have product offers, then it will help boost sales."