Will your home loan EMI fall despite the repo rate hike pause?

The anticipation among home loan borrowers for a decrease in their monthly payments extended as the Reserve Bank of India (RBI) opted to maintain the repo rate at its current level for the sixth successive MPC meeting. This trend commenced in February 2023. Hoping for a shift in the interest rate trajectory, borrowers yearn for relief from the burden of high-interest rates.

Anshuman Magazine, Chairman and CEO–India, South-East Asia, Middle East & Africa, CBRE, said, “The decision to keep the repo rate unchanged for the sixth consecutive time is anticipated to have minimal impact on the interest rates for home loans, providing relief to both existing and prospective borrowers. The stability in interest rates is poised to motivate potential homebuyers and empower developers to plan and launch new projects with increased confidence. The central bank’s decision to remain focused on the systematic withdrawal of the accommodative stance is likely to rein in inflation further."

The upward trajectory of repo rates began in May 2022, triggered by a global surge in inflation linked to geopolitical tensions. Currently, home loan rates are already lower compared 2023, when they began touching 9%. Today, the lowest home loan rates are in the range of 8.3%, and many lenders are offering around 8.5% to eligible borrowers.

Adhil Shetty, CEO of BankBazaar, said, "For new borrowers, the current market presents a good opportunity to lock in a low spread of under 2.00 over the repo rate. However, existing borrowers, who may be paying a higher spread of over 2.00 over the repo rate, may have to wait for a few more months before inflation cools enough to warrant a repo rate cut."

Around 2021 and 2022, when the repo rate stood at 4.00, the market experienced some of the lowest rates of around 6.50, implying a spread of 2.50 over the repo rate. "Borrowers who may have taken loans during that period have the option to refinance their loans to a lower spread and save costs on their interest outgo. This may be especially useful for borrowers with loans taken from government banks where a large chunk of loans follow older benchmarks like MCLR and base rate, which typically have marginally higher interest rates compared to repo-benchmarked loans of today.  In this scenario, refinancing with your own bank can be a simple and low-cost solution which can potentially help you save significantly on your loan," said Shetty.

Further, this decision underscores a profound grasp of the imperative for economic steadiness, crucial for fostering confidence and growth among developers and investors alike. Maintaining the repo rate unchanged amidst global uncertainties, the RBI has fostered a stable financial landscape, enabling strategic planning and investment in real estate ventures with greater certainty.

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Chandresh Vithalani- Director of Palladian Partners Advisory LLP, said, "The decrease in inflation rates brings into focus the critical aspect of affordability, making homeownership more accessible to a larger segment of the population. With CPI inflation projected to stabilise at 5.4% for FY24, and an even more optimistic projection of 4-5% for the current quarter, we are looking at a robust real estate year ahead. This environment not only boosts buyer confidence but also stimulates sustainable growth in the real estate market, ensuring that investments made today will yield positive outcomes in the future."

However, Manju Yagnik, Vice Chairperson of Nahar Group and Senior Vice President of NAREDCO- Maharashtra says, "Considering that the macroeconomic conditions are favourable and the rate has been held at 6.5% for the past few quarters, the Indian real estate market and the overall economy would have benefited immensely from a rate reduction. This action will keep consumer housing costs and mortgage rates higher, and we hope it won't negatively affect the feelings of prospective homeowners."