As widely anticipated, the Reserve Bank of India (RBI) has cut interest rates by 25 basis points (bps). This comes on the back of the Budget declaration that salaried individuals with an income of up to Rs 12 lakh will not have to pay income tax.
The move will not only ease the financial burden on existing homeowners, but also encourage new buyers to enter the market, strengthening overall demand
As widely anticipated, the Reserve Bank of India (RBI) has cut interest rates by 25 basis points (bps). This comes on the back of the Budget declaration that salaried individuals with an income of up to Rs 12 lakh will not have to pay income tax.
A series of 2.5 per cent rate hikes culminating in April 2023 sharply increased home loan rates. This meant that those with a home loan saw their interest rates go up sharply, forcing them to either extend their tenure or pay higher equated monthly instalments (EMI). After that, the RBI kept the rate constant at 6.5 bps for 11 consecutive policy meetings.
As such, it is undeniably a major boost to the homebuyers, particularly for affordable housing buyers. “Many first-time homebuyers who had been hesitating to take the plunge are likely to make their move now as home loan rates will reduce - as long as banks pass on the key benefits to buyers,” says Anuj Puri, Chairman, ANAROCK group.
“The 25-basis-point cut in the repo rate is a significant move, and lending institutions are expected to pass on the benefit to borrowers by reducing interest rates on various retail loans, including home loans, vehicle loans, and personal loans,” says Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution.
Among these, home loan borrowers stand to gain the most, as home loans are typically the largest financial commitments for individuals.
For instance, let’s consider a person planning to buy a Rs 1 crore house with an Rs 80 lakh home loan (80 per cent of the property value). At the current interest rate of 9 per cent per annum, the equated monthly installment (EMI) for a 20-year loan would be Rs 71,978. After a 25-basis-point rate cut, the EMI for the same loan tenure would reduce to Rs 70,696, resulting in a monthly saving of approximately Rs 1,300. Over the loan tenure of 20 years, the borrower stands to save approximately Rs 3.08 lakh in total.
Reduced home loan rates can help the overall positive consumer sentiment, given that housing prices have risen across the top 7 cities this will be a positive move. As per ANAROCK Research, 2024 saw average housing prices rise by anywhere between 13-30 per cent in the top 7 cities, with NCR recording the highest 30 per cent jump.