INDIA BUSINESS WORLD - August 1st to August 31st 2008
HOME LOAN MAJORS RAISE FLOATING RATES BY 75 BASIS POINTS
Home loan rates are back to where they were in '99-00, just before the start of the retail boom. Two of India's largest housing finance providers, HDFC and ICICI Bank, hiked interest rates on floating loans by 75 basis points, a quarter point more than what RBI has signalled. This, incidentally, is the second such increase in a month.
The country’s largest housing finance company, HDFC, has increased home loan interest rates by 75 basis points to 11.75%. This is applicable to floating rate loans. Fixed rate home loans, which had been raised to 14% earlier this month, have been retained at that level.
And just hours after HDFC's hike, ICICI Bank too announced an identical increase in floating rates. The new rates will be effective from August.
Although the present situation may be reminiscent of the high interest rate years of the late 90s, there is a big difference. The average cost of borrowing continues to be lower than what it was nine years ago despite the identical rates. This is because of tax breaks that enable deduction of up to Rs 1.5 lakh of interest payments from the annual income for computing tax liability.
For anyone in the top tax bracket and paying interest up to Rs 1.5 lakh, this translates into savings of Rs 50,000. "In the 90s, home loan rates had gone up to beyond 17%. Today, loans are far more affordable because of the tax breaks," said HDFC vice-chairman and managing director Keki Mistry.
Secondly, although real estate prices in most places are at least thrice the 2000 rates, affordability has increased substantially. In '08, a home loan seeker has to shell out five times his annual income to buy a house.
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