Home loan borrowers face higher outgo in goodbye to easy money

Home loan borrowers brace for further increases in their monthly mortgage payments as lenders follow the Reserve Bank of India (RBI) cue and increase interest rates at the fastest pace in at least a decade.

On Saturday, the Housing Development Finance Corporation (HDFC), India's largest mortgage lender, raised its Retail Loan Prime Rate (RPLR) for the fifth time this year ahead of the Reserve Bank's monetary policy meeting from India scheduled for August 5.

HDFC hiked the RPLR by 25 basis points, raising the minimum lending rate to 7.80% from 7.55% before the rally. A basis point is 0.01 percentage point.

The hike means equated monthly instalments (EMI) on say a Rs 50,000 lakh loan will now rise to Rs 41,202 per month at 7.80% from Rs 40,433 per month at 7.55% before the hike.

In total, HDFC has raised its lending rate by 115 basis points since May. India's largest bank raised interest rates twice in May and June before the latest hike.

Analysts said HDFC's latest hike is pre-emptive, as the central bank is expected to raise its benchmark repo rate, the rate at which banks borrow money, by at least 25 basis points this week.

Raj Khosla, managing director of financial markets firm MyMoneyMantra, said the rate hike was the fastest in a decade and was due to a very easy liquidity situation that kept rates artificially low.

"On the one hand, some of the normalcy is returning to rates but yes, the pace of increases is the fastest we've seen in recent memory. Rates are also rising in the rare case where the global macro economy plays a bigger role." important". in the context of the conflict in Ukraine. It's fair to assume that rates could go up a bit from here," Khosla said.

Borrowers have had to deal with an increase in EMI loans every month for the last three months. For example, from 6.40% in April, a top-rated HDFC borrower is paying 7.80% with monthly EMI on a Rs 50 lakh loan from Rs 36,985 to Rs 41,202.

The main competitor of HDFC and the leader in the interbank mortgage lending market the State Bank of India (SBI) has also raised its benchmark repo rate by up to 90 bps in this fiscal year.

Alok Choudhary, SBI's managing director of retail, said the bank will accept a call on cost-of-funds rates after the Reserve Bank of India's monetary policy decision on August 5. "We will study the possibilities after the RBI policy. The external lending rate is linked to the repo rate and reflects the increase in the RBI Chaudhry rate.

An ICICI spokesman also said the bank would accept a rate call after the RBI meeting.

The repo rate is down 4.90% from its lowest level in 15 years as the central bank slashed interest rates to support the economy during the Covid-19 pandemic.

However, global volatilities, such as rising oil prices, have caused higher inflation around the world. India's inflation rate is above 7% and above the RBI's 6% external threshold, forcing the central bank to abandon its support for growth at all costs.

Adhil Shetty, CEO of Bazaar Bank, said that expectations are for repurchases to stabilize at 6% over the next 12 months from the current 4.90% and it is fair to assume that mortgage borrowers will also see a similar increase in repurchases. rates. “It is true that interest rates have risen sharply and the expectation is that they will continue to rise. Prices are breaking record lows. lagged effect, but those who are not tied to the benchmark might see a lagged effect, but can expect to see a lot more," Shetty said. They will see an increase."

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