Home loan rates over Rs 75 lakh to get dearer as risk weight rises again

Risk weight back to pre-pandemic level of 50%

If you are looking to avail of home loans of above Rs 75 lakh, get ready to shell out more. Rates are set to increase further with the risk weighting on such loans returning to pre-pandemic level of 50 per cent.

In October 2020, the Reserve Bank of India (RBI) rationalised the risk weighting by reducing it to 35 per cent for loan-to-value (LTV) ratio of less than 80 per cent. The relaxation was initially offered till March 31, 2022. In the April 2022 monetary policy review, the RBI extended the relaxation till March 2023. Risk weights were assigned irrespective of the loan amount.

The LTV cap also returns to 75 per cent for loans of over Rs 75 lakh, which was done away during the pandemic. This means a home loan borrower has to pay 25 per cent margin upfront to avail of a loan above Rs 75 lakh. According to the National Housing Bank data, 36.36 per cent or 2.45 trillion of the individual home loan disbursements of banks and housing finance firms during 2021-22 was above Rs 50 lakh. The data showed 29.35 per cent (Rs 1.98 trillion) of the amount disbursed was for loans between Rs 25 lakh and Rs 50 lakh. 

Banks have not yet increased loan rates, but are likely to review the situation soon and take a call, sources said. “The rates may go up around 5 basis points (bps) depending on the loan amount,” a source said.

Home loan rates have been going up since the RBI started to increase the repo rate in May last year. The repo rate has been hiked by 250 bps between May 2022 and February 2023. In the April review of the monetary policy, the repo rate was kept unchanged at 6.5 per cent. (1 percentage point = 100 bps).

As a result, home loan rates have gone up above 9 per cent from around 6.5 per cent in May last year. About 40 per cent of the retail loans are linked to the repo rate, the rest is related to marginal cost of fund based lending rate (MCLR).

State Bank of India, the country’s largest lender, charges 9.15 per cent for the customers with credit score of above 800. HDFC, the largest mortgage financier, is currently charging 8.7 per cent as a special offer for credit score of 760 and above, irrespective of the loan amount. ICICI Bank charges 9.6-9.9 per cent on home loans above Rs 75 lakh.