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Rising interest rates to impact home sales for short term: Experts

Experts have a view that the rising interest rates scenario is going to impact negatively on home buyers’ attitude.

SNS | New Delhi |

Experts have a view that the rising interest rates scenario is going to impact negatively on home buyers’ attitude, resulting in a decrease in housing sales, though for the short term.

“Just as in the case of falling numbers of applicants for new home loans, the number of housing sales too could take a hit over the short term,” V. Swaminathan, Executive Chairman, Andromeda Loans and Apnapaisa.com, said.

Hikes in the repo rate by the central bank ultimately increases the burden of the borrowers. Because the lenders pass it on in the form of increased housing loans, which affects borrowers’ buying decisions. Home buyers stop them from applying for new loans in the hope of a cut in repo rate in future by the central bank.

Soon after the current rate hike by the RBI most banks have started increasing their lending rates. Because of this the borrowers having floating rate interest on their loans saw a rise in monthly EMIs.

“Existing borrowers with floating loans will see a hike in their monthly EMIs as these loans are revised in a quarterly fashion, subject to existing conditions. Customers with home loans and loans against property are likely to witness a sharper increase in EMI rates,” said Amit Prakash Singh, Chief Business Officer, Urban Money.

Singh further added that for every 1 per cent increase in home loan rates, the EMI for every Rs 1 lakh of home loans is likely to increase by Rs 60-70 per month. It is likely that the current trend of repo rate hikes won’t be alive forever and eventually rates will come down if the RBI is successfully able to tame the inflationary pressure.

The Reserve Bank of India (RBI) increased its repo rate by 50 basis points in August to tame inflation.

In the last three months, RBI has hiked the repo rate by 140 basis points, in May by 40 bps, 50 bps in July, and 50 bps in August.

This has pushed the home loan rates across all banks, as with the rate hike, banks tend to pass on their burden to the investors to maintain the balance.

(inputs from IANS)