The Hindu : Karnataka News : Questions galore

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Saturday, Mar 14, 2009
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Karnataka

Karnataka

Questions galore

Despite interest rates moving southwards, home buyers are still a confused lot

The earlier problem was the rising interest rates. Now, it is the opposite! What an unbelievable turn of events. In a scenario of dogged price rise during the last 3-4 years, contributed by increasing interest rates on home loans, cost of raw materials, labour, stamp duty and registration charges, the buyers and developers were eagerly awaiting the reverse trend. When the interest rate started falling, the expectations ran high. Now, it is the falling rates which have created confusion.

In the face of global recession, governmental assistance to support various sectors did come forth. The first stimuli programme implemented by the Government and the RBI during the latter half of 2008 prescribed certain ground rules. Categorisation of home loans into loans up to Rs.5 lakh, and Rs.5 lakh to Rs. 25 lakh, and above Rs.25 lakh enabled small borrowers to breathe easy. The question then was “is the interest of 8.5 per cent for loans up to Rs. 5 lakh enough motivation?” Again, the ceiling of up to Rs.25 lakh at 9.25 per cent interest was found inadequate. Another demand was to apply the reduction to existing loans as well. The second stimuli came soon enough in the closing days of 2008. The reduced rates were made applicable to existing loans too.

And then came the SBI announcement of eight per cent interest to be charged for the first one year for all loans taken up to March 31, 2009. This has changed the game altogether. The interest will be raised for loans of Rs. 20-30 lakh to 10.25 per cent floating from the second year. For loans up to Rs. 30-75 lakh, the corresponding rate has been declared as 9.75 per cent (fixed) and 10.75 per cent (floating) respectively. Only the Central Bank of India has responded to the SBI’s challenge. It brought down the rates in line with that of the SBI.

A migration?

Will this revision lead to a movement of loans from other banks to SBI? If any change is initiated, is it advantageous to the buyers? If ‘yes,’ will it be necessary to consider the tenure of the existing loan as the critical factor? These and many other questions have come up in the minds of the borrowers. The RBI’s latest announcement bringing down the key interest rates by another 0.50 per cent may propel another exercise by banks to bring down the rates. Have we solved the buyers’ problems or confused them further? The scenario has become foggy and will take time to be fully clear.

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