Is Home Loan Interest Rates Go Down In Future?
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Is home loan interest rates go down in future?

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How have the high interest rates affected your loan disbursal?

We were apprehensive, but it hasn't come down as much as we had thought. The loan growth for housing finance companies was 18percent in the first quarter, as opposed to 19percent in the corresponding quarter last year. The reason is simple. Housing is a basic need. If interest rates go up from 9percent to 11percent, it will result in reduced eligibility for the loan amount. So, earlier, if you were eligible for a loan of Rs 1 crore, with increased rates, you will get Rs 70 lac. We are a new entrant and hold less than 1percent of the market share. Even if the demand goes down by 10percent, it doesn't affect us much.

Since there is very little differentiation between products in terms of interest rates, what other parameters do lenders rely on? Is there any scope for innovation and customisation?

The Indian market is fairly commoditized unlike those in Australia and Britain. Apart from interest rates, there are only a few factors, such as loan amount, tenure and turnaround time for proposal, which help decide in favour of a particular lender. There is definitely scope for newer products. Some lenders have come up with an overdraft facility, instead of a term loan, as a financing option for a house.

We too are planning a home loan product, wherein the entire property price will be disbursed as loan. The down payment will come from your investments of a similar amount. So if you are applying for a loan of Rs 50 lac, shares or mutual funds worth Rs 10 lac (20percent of Rs 50 lac), can be used as down payment. In the future, when the property prices rise, you can benefit from it.

What's your view on the housing demand in the country?

The demand is expected to go up from the present 28percent to 40percent by 2025. The reasons are manifold. Firstly, urbanisation is growing. With the advent of metros, commuting has become easier while more and more cities are expanding. The other factors that will push demand is growth of nuclear families and the increase in working population.

Most experts believe that interest rates have peaked. When will we see signs of the rates coming down? What do you think of the five-year fixed rate products some lenders have come up with?

The RBI has increased home loan rates so many times in the past, but inflation is still high. I don't see the rates coming down any time soon. There are various factors at play. Firstly, there is the European crisis, so the banks are lending less, resulting in lesser flow of money. The Israel and Iran war would be pushing the petrol prices up. The third factor is the falling rupee. So, in the future, one should expect 11percent as the rate of interest for home loans.

As for the fixed products, five years is a long time. If the tenure is short, you can go for it. In a short span of two years, the change in interest rate is around quarter or 1percent, which is a notional loss due to the uncertainty in the market. In the case of a product that has a fixed and long tenure, the interest rate risk is borne by the lender. Beyond a point, there is no deep market for it.

The SBI recently waived prepayment penalty across all home loans. Do you see this happening across lenders?

Yes, the National Housing Bank has instructed that prepayment penalty should not be charged on home loans. But I feel one should not prepay the home loan since this is the only leverage a salaried person has. Instead of prepaying the sum, you can invest it in the market for a longer term. Equity markets have delivered an average of 15-16percent return in the long term, which is higher than the loan you have taken at 11percent per annum. Just imagine, who would lend you the same amount at this rate in the future?

Does a retail borrower get any additional advantage from an HFC instead of a bank?
Housing finance companies are more focused as lending is their only business. Banks, on the other hand, have several products. Also, they have a quicker turnaround time and are more transparent regarding their interest rates.