Tough Times Ahead for Home Loan Borrowers
With major banks and housing finance companies (HFCs) raising mortgage rates, it is tough times for a large number of home loan customers with floating rates. On Tuesday, State Bank of India, the country’s largest bank, raised both its deposit and lending rates, taking its effective home loan rate to 10.25%. A back of the envelope calculation shows that home loan rates have increased by about 25% over the last few years, that is from about 8% to above 10% now.
On Tuesday, in addition to raising its base rate by 75 basis points to 9.25%, SBI also raised its fixed deposit rates by as much as 225 basis points (100 basis points=1%), all of which were in maturities of up to six months. The bank also raised its prime lending rate (PLR) by 75 bps to 14% now. All these hikes are effective Thursday.
On Tuesday, State Bank of India, the country’s largest bank, raised both its deposit and lending rates, taking its effective home loan rate to 10.25%. Last week, ICICI Bank, the second largest bank, raised its rates. HDFC Bank and HFC are both expected to follow soon. After the latest round of rate hikes, SBI’s home loan customers would pay 100 basis points (bps) above its base rate of 9.25%; thus the effective rate becomes 10.25%. “With the banking leader in double digits, others will have to be above this level,” an official with an HFC said.
“Customers’ decision to buy homes is largely influenced by the property prices and its affordability and to a marginal extent on the rates of interest on home loans,” said V. Srinivasa Rangan, executive director of HDFC, India’s largest mortgage lender.
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