Home loans grow at a brisk pace despite rise in rates

NEW DELHI: 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.