Teaser rates are back

Despite regulatory discomfort, teaser rates are back. Less than a week after Housing Development Finance Corporation (HDFC) re-introduced its teaser home loan scheme, the country’s largest private sector lender, ICICI Bank, has followed.

ICICI Bank relaunched its special home loan scheme, offering customers a fixed rate of 8.25 per cent for the first year, 9 per cent for the second year and a floating rate thereafter.

The new scheme will pit ICICI Bank squarely against HDFC and State Bank of India (SBI).

HDFC is offering customers a fixed rate of 8.35 per cent up to March 31, 2011, 9 per cent for the year from then to March 31, 2012, and the prevailing floating rate thereafter. This is for all new home loan customers who apply before April 30, 2010, and take at least a part-disbursement before June 30.

SBI, which sparked the battle in the market for mortgages by introducing teaser loans in January 2009, currently offers a fixed interest rate of 8 per cent for the first year, 9 per cent for the next two years and a floating rate thereafter.

Banks are trying to push home loans through special offers as demand has remained low. During the year up to February 26, 2010, housing loans grew by 8.3 per cent, compared to a 16 per cent growth in non-food gross bank credit.

Before ICICI Bank jumped into the fray, HDFC and SBI were the only two lenders still offering teaser home loan schemes. A number of private sector lenders such as ICICI Bank, HDFC Bank and Axis Bank increased their home and auto loans last month, after they were faced with a rising interest rate scenario. This was even before the Reserve Bank of India increased repo and reverse repo rates by 25 basis points last month.