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Banks do not bank on home loans

Organising a loan for your dream home just got a tad difficult. Bankers who were earlier falling over each other to dole out home loans have suddenly become choosy. Banks like SBI, ICICI Bank, UTI Bank, IDBI Bank and leading mortgage firm HDFC are now apparently making a conscious attempt to curb their aggression in the home loan market. So what can you expect as a borrower? For one, be prepared for a haircut on your loan. A customer who approached a private sector bank for a home loan of Rs 10 lakh for a tenure of 15 years found, to his shock, that the loan disbursement was Rs 5 lakh. What’s more, even though the application was made in January, the sanction didn’t come through before March-end. Some banks have also stopped sanctioning fixed rate loans for tenures below 10 years, as they expect interest rates to go up. “Banks that used to offer 100% finance are today financing only up to 85% of the value of the property,” said an IDBI Bank executive. Most bankers aren’t willing to confirm any slowdown in their home loan portfolio. What’s the real reason behind the slowdown? “The huge pick-up in corporate credit and a slowdown in deposit mobilisation have affected banks’ lending capabilities,” said a senior executive from UTI Bank. “The deposit growth for the sector as a whole is around 17%, while credit is growing at almost 28%, forcing banks to become selective,” said the official

Posted in fixed rate home equity loan, home equity loan comparison, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

Home loans grow at a brisk pace despite rise in rates

Even with the hardening of interest rates, home loan disbursals continue to grow at a healthy rate of 30%. With rates going up, the tenure of loans has increased. At the same time, an increasing number of loan seekers are dipping into their own resources to fund new home purchases. Real estate prices, which had skyrocketed last year, are stabilising. With the RBI tightening screws on loan eligibility, especially in the 20 lakh and above category, fewer people are now eligible for loans. “The increase in interest rates for home loans has ensured that loan eligibility has dipped by about 10% and may fall further,” said Rajiv Sabharwal, COO, ICICI Home Finance. While banks are keeping away from financing buyers of second homes, the size of each loan may have gone down slightly for first-time owners. Many prospective loan seekers are dipping into their own resources for a larger part of the financing,” said the general manager of a PSU bank. Floating interest rates on home loans have increased from 7.5% in ’04 to about 9.5% now. Despite this, the industry seems to be growing at a robust 30% compared with the first quarter of ’05. This is due to the fact that real estate prices, which had skyrocketed last year, have stabilised. “Real estate prices are growing by about 35-40% this year against 70-80% last year, and this has offset the increased burden of interest rates in the home loan,” said an analyst. For instance, both ICICI bank and State Bank of India expect the home loan segment to grow by around 25-30% in the first quarter of FY07. As the tenure of the loan period goes up to absorb the burden of higher interest rates, more and more loan seekers are rationalising their loan amounts. “People are resorting to internal accruals to bridge the gap,” said a senior executive for LIC Home Finance. Many bankers feel that only if the floating rates cross the 10% level will rising interest rates have a negative impact on loan disbursals.

Home loan demand still strong

Fears of the real estate sector being hit by an increase in interest rate on home loans have proved unfounded. Latest data from the quarterly results of State Bank of India, ICICI Bank and HDFC shows that driven by a strong demand from end-users, the housing loan segment witnessed a strong growth during July-September 2006 — when interest rates on variable home loans went up one percentage point from 8.5% to 9.5%. Rise in interest rates had no effect on demand for home loans, particularly from end users, says HDFC executive director Renu Karnad. “The demand for residential units continued to be strong as more options were available (to buyers) due of the boom in the construction industry,”she adds. The story is clear in the numbers. During the second quarter, HDFC’s housing loan disbursements went up 26% to Rs 6,895.10 crore, as against Rs 5,473.25 crore a year ago. When compared with disbursements in April-June, the rise was even steeper at 57.24%. During the first quarter of the current fiscal, HDFC disbursed loans worth Rs 4,385 crore. Similarly, for ICICI Bank, the year-on-year growth was 18.33%, with disbursements of Rs 7,100 crore during Q2 this year, as against Rs 6,000 crore in the same period last year. Compared with the first quarter, there was an increase alright, but it was a tad slow, with disbursement rising 12.70%. In the first half of 2006-07, the bank disbursed Rs 13,400 crore, as against Rs 10,600 crore last year, registering a growth of over 26%. For SBI, the growth in home loan disbursements during the first half this year was a whopping 85% to Rs 6,230 from Rs 3,361 crore a year ago. A banker from ICICI Bank said small rise in the interest rates does not affect the demand. The rise of interest rates by one percentage point means that equated monthly installment (EMI) went up by Rs 64 for a Rs one lakh loan for 20 years. So, the EMI on Rs 30 lakh loan will increase by Rs 1,920 from Rs 26,035 to Rs 27,955. But as most borrowers borrow under variable interest rate scheme, they expect the rate to decline in time to come. The banker said that with rates going up, there was a slight dip in demand from those who were buying a house for investment purposes. But someone who is looking to live in a house that he buys, is still willing to borrow if he gets a good deal.

Posted in fixed rate home equity loan, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

Minor relief on home loans

It’s a mixed bag of news for home loan customers. First the good news: Oriental Bank of Commerce (OBC) has rolled back the 50 basis point (100 basis points = 1%) hike in home loans up to Rs 20 lakh. The decision should come as a relief to the common man as majority of home loans availed by retail customers is around or below Rs 20 lakh. Now, the bad news: Three bank boards - Bank of Baroda and Andhra Bank - that met on Monday, ratified the earlier decision of rate hikes. Even OBC has decided to maintain the interest rate hike on loans above Rs 20 lakh. The boards were meeting following a finance ministry directive to review the recent hike in PLRs (prime lending rates). Apart from BoB, OBC and Andhra Bank, this directive was issued to SBI and PNB. The SBI board will meet on August 24 to reconsider the recent revision in PLR, said bank MD TS Bhattacharya. Banks had announced the rate hike after RBI increased its key short-term rate by 25 basis points in a policy review on July 25. Three bank have been successful in convincing their boards, particularly government nominees, that the rate hikes were justified due to the rising cost of funds. The banking community was eagerly awaiting the outcome of the meeting as most other public sector banks are yet to decide on the rate hike. “We had a healthy deliberation on the bank’s numbers. The rate hike decision was ratified. We have assured the board that funding to the productive sector will not be affected on account of the rate hike,”said Andhra Bank CMD K Ramakrishnan.

Home loan rates on their way up

Home loan rates will move up in the next two months, according to Deepak Parekh, chairman, Housing Development Finance Corporation (HDFC). “All banks are looking at rates inching up in the first quarter. April is already over and we should see some upward movement by end-June,” he said. Mr Parekh has received a three-year extension and his term will now end in March ’09. Managing director Keki Mistry’s tenure has been extended for five years up to November ’10. The appointments will be subject to the approval of shareholders at the next annual general meeting to be held on July 15.
Mr Parekh also cautioned against increase in property prices due to speculation. “Demand for housing is high, but we are also witnessing a fair amount of demand from investors in property in certain pockets such as Navi Mumbai and Gurgaon,” he said. World over, banks are chasing borrowers who invest in property, which, in turn, causes a speculative bubble,” said Mr Parekh. He added that HDFC’s focus was on lending to actual users of property. HDFC prices its loans by maintaining its spread of 2% over its cost of funds. Last year, it managed to maintain its spread despite lower lending rates by raising funds at sub-PLR rates from various lenders including banks. However, senior bankers feel there will not be much of a rate hike because of the liquidity in the system. K Cherian Varghese, chairman, Union Bank of India, said that surplus liquidity in the banking system was close to Rs 1,00,000 crore, which was the amount impounded by the Reserve Bank of India (RBI) through reverse repos and market stabilisation bonds. However, with demand for credit picking up, banks have started reducing the discounts on the prime lending rate that they were offering earlier.

PSU banks go slow on home loan

With private and foreign banks putting brakes on the home loan disbursal following the interest rate hikes, public sector banks have also decided to give loans to only select high-quality borrowers. In the process, the worst affected are the retail borrowers, who are now finding it difficult to purchase a house. A senior public sector bank official said following RBI’s apprehension on the quality of real estate as an asset class, banks have decided not to lend aggressively to the housing sector. Even government had indicated that nationalised banks should adopt a go slow and be extra cautious with those who are shifting their loan account from a private bank to a state-run entity. FM P Chidambaram’s recent statement that real estate market is still overheated has particularly affected the mood in the banking sector. “It is quite clear that even the large private banks are wary of their home loan portfolio and want people to voluntary move out. We only want public sector banks to be careful at this time so that they are not saddled with non-performing loans or high levels of default later,” said a government official. But even before the government’s advisory, the signs of rising default were visible with a large number of cheques issued to some private banks from whom people had borrowed being returned for want of cash. “Till a 15 or 18 months ago most private banks were indiscriminately doling out loans and were under-cutting and the result is evident with the large number of default cases that we have to deal with today,” said a branch manager who estimated that the number of such cases had increased almost 50% in the last six months. Official data shows that level of NPAs in home loan market is still as low as 1% but banks still seem to have developed cold feet. Given the large size of the cake, banks were wooing borrowers with attracting lending rates in a highly competitive market. But that was the case till interest rates remained under 10%. Subsequently, the level of activity dipped and those like ICICI Bank, which had emerged as the biggest player in the home loan market, Citibank and HSBC decided to go slow. So, rates on loans went up to around 12%, which is higher than the rates offered by institutions like HDFC and UTI Bank, which are offering loans at around 11%. PSU banks, which were not hiking rates beyond 9.5% thanks to directives from the finance ministry, have now been forced to increase rates to around 10.5% due to a general rise in the cost of funds. But even if you manage to get a loan, things have changed with banks reluctant to offer you over 90% of value of property given the apprehension about the state of affairs in the sector, a bank official added. In smaller cities, banks are restricting exposure to 70% of the property value.

Posted in fixed rate home equity loan, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

Rate hike won’t spoil your home dreams

Home loan providers may have raised rates twice in less than three months. Yet home loans continue to be nearly 45per cent cheaper than what they were in March ’01. While lenders are not worried about a loan slowdown, they are keeping an eye on how much of the loans are towards buying the second house for investment in view of the rise in property prices. Until March ’01, interest rates on HDFC’s home loans were as high as 13per cent and they were computed on a yearly reducing balances. Moreover, income tax relief was available on interest upto only Rs 75,000. This meant that the overall cost of the loan, after factoring in tax breaks, was just below 10per cent. As against this, HDFC today, charges 10.25per cent on its fixed loans and the interest upto Rs 1.5 lakh is available for tax relief. This brings down the cost of the loan to below 6per cent in the initial years. “Despite the increase in interest rates by about 200 bps over the last 2 years interest rate net of tax is just above 5per cent as compared to 11.73per cent in ’00, assuming that the borrower avails of full tax benefits. Therefore, we feel that a nominal increase in the interest rate would not impact the home loan customer much,” said Renu Sud Karnad, executive director, HDFC. She adds that today’s rates that range between 9-10per cent are still much lower than what they were ten years ago, which is 16-17per cent. Moreover, despite the rise in property prices the cost of a house is around four to five times an individuals annual income as against 12-15 times when property prices were at their peak. Property prices are now close to their 1995 peak. Flats at NCPA in Mumbai’s Nariman Point — for long the real estate benchmark in South Mumbai were recently sold at Rs 40,000 per square foot, which is close to the peak rates. ICICI Bank’s chief KV Kamath refuses to speculate whether the rise in property prices is an asset bubble or not. But he points out that the fact is that the official shortage of housing units is 19.4m in the country. What this means is that even if people are only investing in houses there would be a demand for them. But Mr Kamath adds that the bank was being cautious and monitoring multiple house purchases and keeping an eye on other proxy indicators that the bank constantly monitors. Although the bank has not yet matched its rivals HDFC and SBI’s rate hike it is expected to follow suit. In a report issued a couple of months ago Crisil has said most of the current demand for residential properties in India arises from genuine demand from buyers. It adds that even a 30per cent drop in property prices in top six cities (which account for 40per cent of home loans) would result in only to the extent of 0.64per cent of the aggregate mortgage portfolio. This, in turn, translates into an annualised credit loss of about 11 bps, an impact that should be manageable from a systemic viewpoint given that most banks and large housing finance companies have a return on assets (ROA) of over 1per cent.

Realty bite: ICICI ups home loan rate by 1%

ICICI Bank, India’s second largest bank, on Saturday raised the interest rate on its home loans by 1%, a hike that will crush new buyers with a minimum interest rate of 12% on loans. The decision follows the Reserve Bank of India’s decision on Friday to increase the rate at which it lends to banks. This is the fifth increase in ICICI’s rates since May last year, when housing loans were going for only 8.5%. The latest hike will increase the equated monthly instalments payable by Rs 60 for every Rs 1-lakh loan taken for a tenure of 15 years. ICICI has also increased the broad floating reference rate that determines other consumer loans like car and personal loans to 12.75%. The benchmark rate at which it will lend to business is also up a percentage point to 15.75%. ICICI Bank deputy managing director Chanda Kochar said, “The rate increase will definitely slow down disbursal of new loans, a trend already visible in the last six months.” ICICI’s hike is expected to be followed by other banks. An HDFCspokesperson said senior managers would meet on Monday to decide the course of action. The overall increase in lending rates is also expected to depress, among other things, demand for cars. Says a Mumbai-based Maruti dealer: “It is a double whammy for car buyers, who faced an increase in car prices after the budget.” But it may not be all gloom. In the last one year, real estate prices have gone through the roof due to sustained demand and low home loan interest rates. A prominent builder expects prices to ease a bit if demand for new homes drops after the current hike, making homes more affordable. Says the builder: “The price increases slowed down after the interest rate hikes in the last few month. This time, prices may actually drop.”

Posted in fixed rate home equity loan, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

No hike in corporate loan rates, banks to take a call on housing

Bank loans for the corporate sector are unlikely to see a hike in interest rates this fiscal year. However, the decision over interest rates on housing loans has been left to banks.
Speaking to reporters after meeting the chiefs of public sector banks, Union finance minister P Chidambaram said he had been assured by banks that there would not be any interest rate hike on loans for corporate houses. Rates of interest on productive loans will not be raised, till the end of this fiscal,” he said. Productive loans were primarily those given for plant and machinery,construction and import of capital goods and other working capital requirements.
But Mr Chidambaram left it to the banks to decide on the rates for housing loans. “The RBI has already raised the risk weightage for housing loans,” he said. The minister reiterated that nothing should be done to dampen the investment boom taking place in the economy. His views come at a time when there have been expectations of a hike in the general rates of interest for loans from banks.There is sufficient liquidity in the system, with aggregate deposits growing by 12.3% and credit up by 14.2 %, till September. The incremental credit-deposit ratio was close to 100%. But I still think there is ample liquidity,” the minister said. On consolidation in the banking sector, Chidambaram said though some of the public sector banks have begun talking among themselves for mergers, a final decision could be taken only when the bank managements convince their unions. “The Indian banking sector is highly fragmented,” he said whereas in the US the top five banks accounted for 24% of the total assets of the system. In Sweden it was 90%, he added. A background note circulated among the CMDs at the meeting says “the government can no longer shield domestic public sector banks from competition from global entities”. It goes on to say that in such an environment “domestic banks have to keep pace with global entities or else they would become marginalised entities”. To raise capital for growth, he said the RBI was examining various hybrid instruments to include in the tier-III capital of banks. Tier-I includes equity and reserves, while tier-II is cumulative preference shares and subordinated debt.

Posted in fixed rate home equity loan, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

Interest rates on home loans set to rise 25-50 bps

Retail customers, especially home loan customers taking loans above Rs 20 lakh, may have to pay marginally higher interest rates. A similar hike may also be seen on loans to commercial real estate developers. Initial estimates by bankers suggest that the increase in rate for home loans and other segments would be around 25-50 basis points. Banks will have to charge higher interest rates on some categories of retail loans as RBI has hiked general provisioning for standard assets in specific sectors like personal loans, loans and advances qualifying as capital market exposures, residential home loans above Rs 20 lakh and commercial real estate loans from 0.4% to 1%. RBI also raised the risk weightage on commercial real estate from 125% to 150%. Even as the provisioning requirement has gone up around 60 basis points, the hike in interest rates may be lower as the impact would be felt for the first year. It would also depend on how well capitalised the banks are as the rise in provisioning and risk weightage would affect the return on equity for banks. Weaker banks and banks with a large portfolio of these loans are likely to be more affected and may hike rates first. However, some banks have already made a standard provision of around 1%. According to Neeraj Swaroop, CEO, Standard Chartered Bank (India region),”There is likely to be an impact and there would be repricing on some of the loans. The increase in provisioning would impact banks’ return on equity. However, the impact would be in the short-term.” AK Khandelwal, CMD, Bank of Baroda, adds that banks will have to reprice their portfolios. He also said that banks may either slow down or have to budget for the higher risk. Banks have seen a sharp rise in loans to the commercial real estate sector. Between April to January ’06, loans to builders shot up 84% (increasing by Rs 11,225 crore), the highest credit growth recorded in any sector. The average ticket size for a home loan is much lower than Rs 20 lakh. “Some products like personal loans are rate insensitive. Others which are finely priced like mortgages would see a revision in interest rates,” says Romesh Sobti, country representative, ABN Amro (India). In metros like Mumbai, Delhi and Bangalore the ticket sizes are higher because of a sharp spurt in real estate prices. The average ticket size for home loans in HDFC is lower than Rs eight lakh. There may only be a marginal impact on interest rates for loans taken against shares or other collateral for investments in the capital market. However, according to bankers, post the demat scam IPO funding by banks and also loans against shares have been restricted. Banks may not hike interest rates on personal loans due to the high interest rates already existing in this category at around 15-21% currently. These loans are taken by customers only as a last resort for medical or other household emergencies.

Posted in fixed rate home equity loan, home equity loan bankruptcy, bank loan, loan rate, home equity loan rate, home loan, loan, loan calculator, home equity loan | Comments(0) July 2007

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