At a time when interest rates on home loans are rising in line with the Reserve Bank of India’s (RBI) policy rates, lenders such as Housing Development Finance Corporation (HDFC), State Bank of India (SBI) and Bank of Maharashtra are clearly the outliers. They have cut home loan rates recently to attract demand in wake of the festive season.
As part of its festive offer, SBI is offering a concession of up to 0.25 percent on home loans, with rates starting at 8.40 percent.
The country’s largest lender is also offering a concession of 0.15 percent on top-up loans, and 0.30 percent on loans against property. The bank has further sweetened the deal by waiving off the processing fee on home loans up to January 2023.
Bank of Maharashtra also cut its home loan interest rates by 30-70 basis points. Home loans will now be available at a minimum of 8 percent per annum rate.
Mortgage lender HDFC also offers festive cheer for borrowers. Under the special festive offer, HDFC is offering just one rate of 8.4 percent on home loans for a credit score of 750 and above, irrespective of the loan amount. This offer is valid till November 30. Prior to this offer, HDFC’s home loan rates ranged between 8.60 and 9 percent, depending on the loan amount and credit score.
Bajaj Housing Finance Limited, the wholly owned subsidiary of Bajaj Finance Limited, has announced a Diwali special offer, slashing its home loan interest rate to 8.2 percent per year for salaried and professional applicants. The Diwali Special Offer will remain valid from October 14 to November 30 and is only applicable at select locations.
Festivals such as Navratri, Dussehra, Dhanteras and Diwali are traditionally considered auspicious to make investments in homes, gold, etc. Lenders are using the festive season to offer lucrative home loan rates and tap into credit demand.
Also read: How much will RBI’s new 50-bps rate hike pinch you as a borrower?
Tapping demand
The drop in rates comes at a time when the RBI’s rate-setting Monetary Policy Committee (MPC) has increased the repo rate by 190 basis points since May to quell inflationary pressures in the economy. Banks are quick to pass the repo rate hike on loans to consumers.
Bankers said that the cut in home loan rates comes at the right time, now that the economy is just about recovering from COVID-19 and the festive cheer has begun to set in.
“As we enter the festive season after a long period of muted celebrations due to COVID restrictions, our offers this festive season are aimed at providing the much-needed support to prospective home buyers as they embark on their journey for home ownership,” said Alok Kumar Choudhary, managing director, retail banking and operations at SBI.
Choudhary added that SBI is seeing “strong interest” for home loans across the country.
Home loans extended by banks increased by 16.4 percent year-on-year (YoY) to Rs 17.86 lakh crore in August, according to data from the central bank. Analysts attributed this rise to pent-up demand, consumers’ growing disposable incomes and aspiration for owning a house.
“Lower interest rates do lure borrowers. We would like to see the length of time the scheme works to see if the demand will accrue,” said Hemali Dhame, associate vice president, research, at Kotak Securities.
Also read: Planning to buy a car this Diwali? Banks offer attractive rates on EV car loans
Can home loan demand sustain?
According to analysts, demand for loans responds more to every consumer’s affordability rather than cost of money. Also, to say that home loan demand will sustain just on the basis of these cuts would be premature, especially since interest rates are poised to edge higher, going forward, they said. Whether other banks shall follow suit is a strategic decision of each bank, they added.
“In an increasing interest-rate environment, lenders will not offer such generous pricing to everyone. So, the eligibility filters will be fairly tight, I suspect,” said Krishnan ASV, senior vice president, HDFC Securities.
“Any positive impact on demand would be negligible. This demand would come from those consumers who have waited on the sidelines for the right offer. Now, when pricing is conducive, such customers may bite,” Krishnan added.
According to Punit Patni, a research analyst at Swastika Investmart, the robust demand for home ownership is “astonishing”, considering the current interest hikes and rising real estate prices. Lower rates may not be sustainable (for lenders) for a long time, which is why these offers are meant for only a temporary period, added Patni.
Patni said that the recently announced rate cuts by a few lenders “will be the icing on the cake” for borrowers and other banks will jump on the bandwagon soon.
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