It looks like bad days are ahead for home loan borrowers. Interest rates on home loans may soon rise for borrowers as the Reserve Bank of India (RBI) raised the repo rate again today. The central bank raised the repo rate by 50 basis points.
Many mortgage borrowers were already feeling the pinch of repo rate hikes in the previous three monetary policy announcements since May 2022. Another hike in key rates will further compound their woes amid high inflation.
Interest rates on home loans offered by many banks reflect RBI policy rate hikes since May 2022. While RBI had raised the repo rate by 140 basis points from May, there has been a corresponding increase in interest rates on home loans, depending on the type of reference chosen by the lender.
In some cases like SBI, the lending rate has increased by as much as 70 basis points. This means that if an SBI client was paying interest on a home loan at 7% in May 2022, they are now paying 7.70%. In the case of mortgages linked to the repo rate, the interest rates that borrowers have to pay have increased further.
Impact of the increase in the repo rate on the interest rate of mortgage loans: what the experts say
Experts say banks will now be forced to pass on increased costs to borrowers. However, this may not happen during the current festival season.
“The 50 basis point rise in the repo rate to 5.9% was expected as the RBI steps up its efforts to control inflation. for this to happen during the current festive season is low.Considering that a large number of home buyers in India make their buying decision at this time of the year, financial institutions would not like to mitigate the festive spirit by immediately raising rates,” said Dhruv Agarwala, Group CEO Housing.com, PropTiger.com & Makaan.com
“Banks should continue to raise their mortgage rates in the coming months. As the holiday season approaches, developers are likely to come up with enticing schemes to attract closeout owners and first-time home buyers,” said Ramesh Nair, CEO, India & Managing Director, Development market, Asia, Necklaces.
“The rise could negatively impact consumer sentiment ahead of the holiday season. However, from a homebuyer’s perspective, mortgage rates will still remain below 9% per annum and they should take advantage of this opportunity. and shop by taking advantage of festive deals and discounts in the market,” said Amit Goyal, CEO, India Sotheby’s International Realty.
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What we expected from RBI
Experts were expecting RBI to further raise the repo rate up to 50 basis points today. “We now expect the RBI to raise the repo rate by 50 basis points on September 30,” economists at Yes Bank had said in a report.
A report by SBI Research also predicted that the central bank could raise the repo rate by 35 to 50 points.
More pain to come?
Yes Bank economists believe that the RBI could raise the repo rate again by 35 basis points in December 2022 and another 25 basis points in February 2023. the Fed, this time there could be have momentum closer to repo rate increases by the RBI to the global monetary policy cycle. Therefore, RBI will increase the repo rate by 50 basis points on September 30. Additionally, we now see the RBI increasing the repo rate by 35 basis points in December 2022 and another 25 basis points in February 2023 before pausing,” they said.
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If the prediction of Yes Bank economists comes true, the policy rate would increase by an additional 110 basis points, from today until February 2023. This means that banks will also increase their floating interest rates on home loans.
However, there could be a silver lining for borrowers when this fear of rising interest rates in 2023 ends. financial year 2023. If this happens, lower inflation could motivate the RBI to cut repo rates, which will also be reflected in borrowers’ home loan interest rates.