New Delhi: As the outstanding house loan balance of banks nearly doubled to Rs 16.85 lakh crore in the last five years, according to Reserve Bank data, interest rates do not appear to have a significant impact on those who borrow money to purchase their dream residential homes.

Banks’ outstanding house loans have grown by double digits even in the first five months of the current fiscal year, despite the Reserve Bank boosting the key interest rate three times during this time by a whopping 140 basis points (bps), which increased the home loan rate.

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In September, there was a 50 bps increase in the repo rate.

According to data from the RBI, the banks’ outstanding home loans were worth Rs 8,60,086 crore at the end of the 2016–17 fiscal year, and they will be worth Rs 16,84,424 crore by the end of the 2021–22 fiscal year.

Although interest rates are significant, according to experts in the banking and real estate sectors, they do not prevent home buyers from making a purchase because the choice is made based on present income and future prospects.

Additionally, individuals are becoming more and more conscious that interest rates fluctuate during the course of a loan, which is normally for 15 years.

H T Solanki, General Manager Mortgages and Other Retail Assets at Bank of Baroda, commented on the banks’ growing loan portfolio by stating that affordability is a crucial consideration because purchasing a home often requires borrowing money.

“However, home loans are also a long-duration product and customers do expect changes in interest rates during the tenure of the loan. Further, the average pay increases in the range of 8-12 per cent in the country also help to mitigate the impact of a rate increase to a certain extent,” he said.

According to the RBI data, the outstanding home loans held by banks climbed between 13.7 and 16.4% annually in each of the first five months of the current fiscal year.

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The amount still owing at the end of August 2022 was Rs 17.85 lakh crore.

Renu Sud Karnad, managing director of HDFC, commented on the increased interest rates by saying, “I don’t think interest rate hike will have a major influence on demand for house loans.”

The senior banker pointed out that unlike other purchases, a home is chosen after extensive family research.

Housing loans have a fluctuating interest rate and, unlike auto or consumer durable loans, are long-term, lasting 12 to 15 years on average, according to the speaker.

“And hence increase in interest rates have a relatively less impact on the cash flow. Usually 2 to 3 interest rate cycles play out during the loan timeframe of 12 to 15 years. So borrowers understand that interest rates may also come down during such a long tenure of loan,” Sud explained.

The merger of HDFC Bank and HDFC, the largest mortgage lender in the nation, is currently taking place.

In the previous 12 to 15 months, sales of residential homes have experienced a robust comeback, according to realtors, Karnad, Solanki, and both of them.

Samantak Das, chief economist for property consultancy JLL India, stated that starting in March 2016, the average interest rate for home loans was on the decline, falling to 6.95 percent till April 2022.

This was in line with the trajectory of the RBI policy rate (repo), which fell from 6.25 percent in March 2017 to 4 percent in March 2022.

Das said the transmission to the home loan interest rate is to the extent of 140-150 bps, putting the mortgage rate to roughly 8.85 per cent. The RBI increased the repo rate by 190 basis points in the current fiscal year.

“However, home sales are still robust and may touch a decadal high by the end of 2022. This may be attributable to the strong festive demand coupled with stable pricing and relatively lower home loan interest rate compared to the peak of 10-11 per cent witnessed 8-10 years back,” he said.

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