Huge relief for homebuyers after RBI decides to keep repo rate unchanged
The back-to-back interest rate hikes had come as a major challenge for the existing homeowners who either were opting to refinance their loans or partially repay them to reduce their financial burden.
- Apr 6, 2023,
- Updated Apr 6, 2023 2:47 PM IST
The Reserve Bank of India’s (RBI) latest stance to keep the repo rate unchanged has come as a huge relief for homebuyers and aspirants who were waiting for the central bank to hit a pause button or lower the rate so that they could apply for home loans. Since May 2022, the central bank has increased the rate by 250 bps over inflation concerns. It was only this time that the central bank decided to keep the rates unchanged and revised its inflation projections, estimating that the Consumer Price Index will average around 5.2 per cent in FY24 than the earlier estimate of 5.3 per cent.
The back-to-back interest rate hikes had come as a major challenge for the existing homeowners who either were opting to refinance their loans or partially repay them to bring down the financial burden. Those buyers who were paying a home loan interest rate of 6.75 per cent in April 2022, are now paying around 9.25 per cent as per the external benchmark lending rate (EBLR) norms.
As per recent RBI data, the 1-year median MCLR has climbed to 8.55 per cent in February from 8.45 per cent in January. Besides, the share of external benchmark lending rate (EBLR) on total outstanding floating rate rupee loans surged to 48.3 per cent by end of December 2022, while MCLR-linked loans increased to 46.1 per cent.
In layman’s language, a hike in MCLR and EBLR means banks increase their lending rates on home loans.
Therefore, the RBI’s latest stance on the repo rate will particularly give relief to affordable and mid-segment homebuyers. The affordable housing segment has been under stress since the pandemic. Experts in real estate welcomed the move and said that this could boost the confidence of homebuyers and their faith in the Indian real estate market.
"Despite inflationary pressure and other geopolitical issues, RBI's decision to maintain the status quo on policy rates is good news for home buyers. Rising home loan interest rates have become a growing concern for both home buyers and supply-side stakeholders. To some extent the higher home loan interest rates have dampened the demand for affordable and mid-segment housing as buyers in these segments are more price-sensitive," said Amit Goyal, CEO, India Sotheby's International Realty.
"We laud the RBI for maintaining the repo rate, in a move that is bound to go a long way in sustaining the sales momentum that we’ve witnessed in the residential segment. Given the potential adverse impact of a hike in repo rate and its ripple effect on both housing demand and supply, this move would provide a further boost for the affordable and mid-income housing segments, in particular," said Boman Irani, President-Elect, CREDAI National.
During the media interaction after MPC meeting, RBI Governor Shaktikanta Das said the decision to keep repo rates unchanged is only a “pause, not a pivot”. He had, during the announcements earlier in the day, also said that the central bank is ready to act if the situation warrants, indicating the possibility of further rate hikes in the future.
But still, experts in the real estate segment cheered the decision as it has brought some relief as the rising home loan interest rates were becoming a growing concern.
"The unchanged repo rate is likely to give some breather to homebuyers as the RBI has raised the repo rate by a cumulative 250 basis points since May 2022, thereby pushing up interest rates for homebuyers to 9.5 per cent and above. Given the expected nominal growth in income levels paired with sturdy prices in a cautious economic environment, RBI’s pause on repo rate is a much-needed step to boost real estate sentiment," said Piyush Gupta, MD, Capital Markets & Investment Services at Colliers India.
The Reserve Bank of India’s (RBI) latest stance to keep the repo rate unchanged has come as a huge relief for homebuyers and aspirants who were waiting for the central bank to hit a pause button or lower the rate so that they could apply for home loans. Since May 2022, the central bank has increased the rate by 250 bps over inflation concerns. It was only this time that the central bank decided to keep the rates unchanged and revised its inflation projections, estimating that the Consumer Price Index will average around 5.2 per cent in FY24 than the earlier estimate of 5.3 per cent.
The back-to-back interest rate hikes had come as a major challenge for the existing homeowners who either were opting to refinance their loans or partially repay them to bring down the financial burden. Those buyers who were paying a home loan interest rate of 6.75 per cent in April 2022, are now paying around 9.25 per cent as per the external benchmark lending rate (EBLR) norms.
As per recent RBI data, the 1-year median MCLR has climbed to 8.55 per cent in February from 8.45 per cent in January. Besides, the share of external benchmark lending rate (EBLR) on total outstanding floating rate rupee loans surged to 48.3 per cent by end of December 2022, while MCLR-linked loans increased to 46.1 per cent.
In layman’s language, a hike in MCLR and EBLR means banks increase their lending rates on home loans.
Therefore, the RBI’s latest stance on the repo rate will particularly give relief to affordable and mid-segment homebuyers. The affordable housing segment has been under stress since the pandemic. Experts in real estate welcomed the move and said that this could boost the confidence of homebuyers and their faith in the Indian real estate market.
"Despite inflationary pressure and other geopolitical issues, RBI's decision to maintain the status quo on policy rates is good news for home buyers. Rising home loan interest rates have become a growing concern for both home buyers and supply-side stakeholders. To some extent the higher home loan interest rates have dampened the demand for affordable and mid-segment housing as buyers in these segments are more price-sensitive," said Amit Goyal, CEO, India Sotheby's International Realty.
"We laud the RBI for maintaining the repo rate, in a move that is bound to go a long way in sustaining the sales momentum that we’ve witnessed in the residential segment. Given the potential adverse impact of a hike in repo rate and its ripple effect on both housing demand and supply, this move would provide a further boost for the affordable and mid-income housing segments, in particular," said Boman Irani, President-Elect, CREDAI National.
During the media interaction after MPC meeting, RBI Governor Shaktikanta Das said the decision to keep repo rates unchanged is only a “pause, not a pivot”. He had, during the announcements earlier in the day, also said that the central bank is ready to act if the situation warrants, indicating the possibility of further rate hikes in the future.
But still, experts in the real estate segment cheered the decision as it has brought some relief as the rising home loan interest rates were becoming a growing concern.
"The unchanged repo rate is likely to give some breather to homebuyers as the RBI has raised the repo rate by a cumulative 250 basis points since May 2022, thereby pushing up interest rates for homebuyers to 9.5 per cent and above. Given the expected nominal growth in income levels paired with sturdy prices in a cautious economic environment, RBI’s pause on repo rate is a much-needed step to boost real estate sentiment," said Piyush Gupta, MD, Capital Markets & Investment Services at Colliers India.