If you have been planning to purchase a home in the near future, take note of the anticipated rise in loan interest rates. A majority of institutions like SBI, ICICI Bank, and HDFC Bank, have increased their interest rates by 10-25 basis points after the increase in key policy rates by the RBI to 4.40% (an increase of 40 basis points). With a rise in inflation, experts anticipate more such rate increases to follow. Simultaneously, construction costs have gone up by 6-8% owing to supply chain disruptions and higher prices of steel, cement and other commodities. This will also be passed onto consumers.
Several experts feel that price hikes up to 10% will not negatively impact home buying demand. Demand rose for larger homes after the pandemic, although with an increase in costs, will buyers seek smaller units once again? Piyush Bothra, Co-Founder and Chief Financial Officer of brokerage and mortgage platform Square Yards, opined that consumers have increased awareness of current market conditions. He felt that customers will not mind paying a little extra for bigger dream homes. Other experts also feel that customers will keep looking at bigger homes in less-costlier area, especially with remote work or hybrid working formats becoming commoner after the pandemic.
Circle rates are also going up throughout many Indian States. Governments are no longer providing stamp duty rebates as well. Experts feel that with interest rates on an upward trajectory now, upcoming festive offers may not be a major difference. Waiting for the same may not be a productive decision in this scenario according to them. Sales figures remain positive throughout the country at the moment and some experts feel that buyers may find it easier to negotiate prices for under-construction projects by leading developers since this category has comparatively lower sales velocity.
While fixed-rate home loans are available, they may only be provided for a limited duration in some cases. At the same time, they are also costlier than floating-rate home loans. Many home buyers had previously worked out home purchase plans with interest rates at their lowest levels. These hikes have naturally put a spanner in the works for them. Bothra stated that if home buying is imminent, then customers can choose the maximum loan tenure possible to reduce the home loan EMI payments. He also stated that buyers can consider paying higher margin money for lowering the financial burden. With a flourishing job market and future income increases, then can prepay their home loan EMIs and close out their loan tenures sooner than anticipated, thereby becoming debt-free.
At the same time, having a good credit score may also help borrowers get loans at better interest rates. Buyers should also understand prepayment clauses, fees and penalties. Buyers should also negotiate with developers since many are amenable towards lowering their prices if they find out that it is a serious buyer.
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Published Date: May 13, 2022
