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Mumbai: Cheaper home loans have helped buyers stay in the housing market despite a drop in general consumer confidence in a contracting economy. Developers believe that continued interest from banks in offering lower-cost mortgages through central bank interventions have helped boost real estate sales.

The Reserve Bank of India (RBI) has lowered its repo rate by 115 basis points (bps) since last March in a bid to revive the flow of credit.

Banks have also cut lending rates in tandem with the central bank’s signalling, with the highest pass-through offered to fresh loans. On Monday, State Bank of India reduced its interest rate on home loans up to 75 lakh to a record low of 6.70%. That apart, Kotak Mahindra Bank also reduced its home loan rate to 6.65% on Monday.

Data from RBI showed that total outstanding home loans from the banking sector stood at 14.18 trillion as on 29 January. Mortgage growth has seen a rebound in the past few months, after a dull period till August 2020. In fact, between March-end and August 2020, a period that coincided with the RBI’s six-month moratorium on repayments, mortgage loan growth was flat at 0.78%. Since then, it has picked up to 5.04% (between August-end and January-end). On a year-to-date basis, bank home loans have grown 5.86%.

The Reserve Bank of India (RBI) has lowered its repo rate by 115 basis points (bps) since last March in a bid to revive the flow of credit.
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The Reserve Bank of India (RBI) has lowered its repo rate by 115 basis points (bps) since last March in a bid to revive the flow of credit.

Anarock Property Consultants said rising home affordability is linked to a housing market recovery that started in the December quarter. Amid government-led incentives like lower stamp duties in Maharashtra and Karnataka and large discounts from developers, the top seven cities saw robust sales of 50,900 units in the quarter, rebounding to almost 86% of the corresponding period in 2019, when sales stood at 59,160 units. The Mumbai Metropolitan Region and Pune drove sales with both making up 53% of the total share.

“Lower interest rates are definitely a factor in boosting demand; I don’t think we have seen such low interest rates in the last 15-20 years," said Farshid Cooper, MD, Spenta Corporation, a south Mumbai-based developer. “Buyers are more willing to borrow to fund homes and are choosing to commit free capital to other investments."

Lenders have traditionally preferred secured assets over unsecured ones and home loans are one of the most sought-after businesses. With an immovable asset like a house as collateral, banks and non-banks have been quite bullish on mortgages. Bankers said post-pandemic, there has been a renewed demand for buying homes, leading to higher sanctions and disbursals of home loans.

SBI and ICICI Bank recently said they crossed major milestones in home loan portfolios. While SBI said last month that it reached 5 trillion in home loans, ICICI Bank crossed the 2-trillion mark in November 2020.

Interestingly, SBI is optimistic of doubling its portfolio in the next five years and the bank is hopeful that the trend of younger people buying houses will aid its cause. For SBI, 42% of its home loan customers are 40 years or younger, Dinesh Khara, chairman, SBI, said last month.

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