Home buyers should watch out for rising interest rates
If you’re thinking of buying your dream home, here’s a reason to worry. Most lenders including ICICI Bank, HDFC Bank and State Bank of India hiked home loan rates within a range of 10 to 25 basis points (bps) after the Reserve Bank of India (RBI) raised last week its key rates by 40 bps. at 4.40%. With inflation likely to remain high, experts are predicting more such rate hikes, which will drive home loan rates higher.
“At the same time, there has been a disruption in the global supply chain and the prices of raw materials such as cement, steel and other components have also increased, leading to higher construction costs. about 6 to 8%. This additional cost will have to be borne by consumers,” said V Swaminathan, Executive Chairman of 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 take a look at the factors potential buyers should keep in mind when setting out to buy their dream home.
Big or small houses?
Demand for larger homes has seen a surge after people were forced to work from home during the lockdowns that were imposed to contain the spread of covid-19 in the country. With builders having no choice but to pass on input cost inflation, would people seek out smaller homes again?
“Consumers are well aware of market conditions. They won’t mind the pinch and will sacrifice their dream of having a spacious home supply,” said Piyush Bothra, co-founder and CFO of Square Yards, a technology-focused brokerage and mortgage marketplace.
Even Anuj Puri, Chairman of Anarock Group, believes there will be a more decisive shift in demand towards bigger homes in cheaper locations.
“The hybrid work ethic has become an accepted way of life, and the so-called big quit in the IT industry means people won’t compromise on their new work-life balance equation,” Puri said.
Buy now or later?
Circle rates are increasing in every state. The benefits of lower stamp duty, offered by governments to support demand, are also not currently available.
In these circumstances, many consumers are hoping that banks could offer festive home loan offers. However, experts suggest that it is not wise to wait for such offers. “Interest rates have turned and are now on the rise. Festive offers will also take these factors into account. So waiting a few months to invest may not bring much relief,” said Adhil Shetty, CEO of BankBazaar. com.
Puri is of the opinion that sales momentum remains strong and the best home options continue to be purchased. “Now is a good time to negotiate the best price on homes under construction by reputable developers, as the sales velocity is relatively lower in this category,” he suggested.
Time to lock in rates?
There are fixed rate home loans available from several lenders. However, buyers should be aware that the loan may not be fixed for the full term – the fixed part may only last for a year or two, after which the bank may reset the interest. Second, fixed rate loans are generally more expensive. Buyers may have to pay between 50 and 350 basis points more compared to floating loans. Thus, it is possible that opting for a fixed loan will make the loan more expensive.
What should buyers do?
Most homebuyers had planned to buy a home when loan rates bottomed out and calculated their loan repayments based on that. The sudden rise in interest rates, however, hampered their plans.
“If buying a home is an imminent decision for you, you can opt for a maximum eligible loan term, which will ease the loan obligations. You can also pay a higher margin to cushion the financial burden. With With the job market booming and your income increasing later, you can prepay EMIs and close the loan term sooner to get out of debt sooner than expected,” Bothra said.
Plus, a good credit score can help buyers get a loan at the best rates. Pay attention to the terms and conditions.
“This is particularly true of prepayment clauses. For example, some lenders may allow only four prepayments per year. Others may allow 12. You should understand them carefully before taking out the loan. Fees and other charges also play an important role,” Shetty said.
Although buying a home is a personal choice, experts say it’s a good idea to negotiate with the developer because most real estate agents lower their quotes if they think the buyer is serious.