If you have been planning to buy your dream home, here is a reason for worry. Most lenders, including ICICI Bank, HDFC Bank and State Bank of India, have raised home loan rates in the range of 10-25 basis points (bps) after the Reserve Bank of India (RBI) last week raised key policy rates by 40 bps to 4.40%. With inflation likely to stay high, experts anticipate more such rate hikes, which will result in home loan rates getting dearer.
“At the same time, there has been disruption in the global supply chain and prices of commodities such as cement, steel, and other components have also gone up, leading to an increase in construction costs by around 6-8%. This additional cost will have to be borne by the consumers,” said V Swaminathan, executive chairman, Andromeda and Apnapaisa.
A recent Anarock survey estimated that a price increase of up to 10% can be absorbed without any negative impact on demand.
We look at factors that prospective home buyers should keep in mind as they set out to buy their dream house.
Big or small homes?
The demand for bigger homes saw a spurt after people were forced to work from home during lockdowns that were enforced to contain the spread of covid-19 in the country. With builders having no option but to pass on the input cost inflation, would people look for smaller homes again?
“Consumers are well aware of market conditions. They won’t mind the pinch and sacrifice their dream of having a spacious home offering,” said Piyush Bothra, co-founder and chief financial officer, Square Yards, a tech-led brokerage and mortgage marketplace.
Even Anuj Puri, chairman, Anarock Group, believes that there will be a more decisive demand shift towards larger homes in less expensive locations.
“The hybrid work ethos has become an accepted way of life, and the so-called Great Resignation in the IT sector implies that people will not compromise on their new-found work-life balance equation,” said Puri.
Buy now or later?
Circle rates are increasingacross states. The benefits of lower stamp duty, offered by governments to prop up demand, are also not available now.
Under these circumstances, many consumers are hoping that banks could come out with festive home loan offers. However, experts suggest it is unwise to wait for such offers . “The interest rates have turned and are now on the upswing. The festive offers will also take into account these factors. So waiting for a few months to invest may not bring in much relief,” said Adhil Shetty, CEO of BankBazaar.com.
Puri is of the opinion that the sales momentum remains high, and the best home options continue to be snapped up. “It is currently a good time to negotiate the best price on under-construction homes by reputed developers, as sales velocity is relatively lower in this category,” he suggested.
Time to lock-in rates?
There are fixed home loans rate available from several lenders. However, buyers should be aware that the loan may not be fixed for the entire tenor—the fixed part may be for only a year or two, after which the bank can reset the interest. Second, fixed-rate loans are usually more expensive. Buyers may have to pay anywhere from 50-350 bps more compared with floating loans. So, there is a chance that opting for a fixed loan may make the loan more expensive.
What should buyers do?
Most homebuyers had planned to buy a home when loan rates hit rock bottom and calculated their loan payments based on it. The sudden interest hike has dampened their plans though.
“If homebuying is an imminent decision for you, then you can go for maximum eligible loan tenure, which will ease loan obligations. You can also pay greater margin money to cushion the financial load. With the job market in full bloom, and your income increases later, you can prepay EMIs and close the loan tenure earlier to become debt-free more quickly than expected,” said Bothra.
Further, a good credit score can help buyers get a loan at the best rates. Do watch out for the terms and conditions.
“This is especially true of prepayment clauses. For instance, some lenders may allow only four prepayments in a year. Others may allow 12. You need to understand these carefully before taking the loan. Fees and other charges also play a big role,” said Shetty.
While buying a house is a personal choice, experts say it is advisable to negotiate with the developer as most realtors lower their quotes if they find that the buyer is serious.