Thanks to the tightening in home financing regulations by the Reserve Bank of India (RBI), buying a home will become dearer for those relying entirely on a bank loan.
As per the new norms spelt out by RBI during the credit policy review on Tuesday, a home buyer can avail of only 80% of the value of the house from a bank. The remaining 20% will have to be arranged by the buyer on his own.
For a majority of commercial banks, including SBI and ICICI Bank, the loan-to-value (LTV) ratio varies in the range of 70% to 80%. However, in some cases ? depending on the credit profile and income of the borrower ? the ratio can go up to as much as 85%.
?RBI will send a circular to the National Housing Bank (NHB) in the next two days and accordingly they would be announcing the guidelines,? RBI deputy governor Usha Thorat said. NHB regulates the housing finance companies.
Speaking on the move, RR Nair, director and chief executive at LIC Housing Finance, said, ?Select banks and housing finance firms were sanctioning loans up to as high as 90% of the value of the house. RBI was definitely not happy with this and hence has come out with this guideline. For us, the average LTV is around 59% and the average loan size is Rs 15 lakh. So, even if NHB were to extend the guidelines to NBFCs, it will not have any major impact on us.?
During the policy review, RBI also came down heavily on the concept of teaser home loan rates. It said such schemes present a high risk to banks as borrowers are likely to default in the long run when the rate of interest gets dearer. At present, new borrowers can get home loans at a rate as low as 8% for a fixed number of years after which the rate tends to shoot up. Given the risk, RBI has increased the standard asset provisioning on teaser loans to 2% from the present 0.4%.
State Bank of India chairman OP Bhatt said, ?RBI has no definition for teaser home loan rates. As far as SBI is concerned, this special home loan scheme has been a customer acquisition and cross-selling tool. All of our incremental home loan customers are under the special home loan scheme. We will review it by December end.? HDFC will also be reviewing its special home scheme next week.