Understanding The Link Between RBI Repo Rates And Your Home Purchase

Understanding The Link Between RBI Repo Rates And Your Home Purchase

The resultant impact on lending rates influences your home loan eligibility amount and the price tag that you can afford

Sheetal S PatilUpdated: Tuesday, December 26, 2023, 01:54 PM IST
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Whenever the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) takes a decision on the repo rates, home seekers who have an understanding of the possible implications tend to be as eager to hear the announcement as cricket fans await the Indian team’s lineup for the final match of an important tournament.

So, when the RBI recently announced its decision to keep the repo rate unchanged at 6.50 per cent for the fifth consecutive time, it was indeed time for them to rejoice and with good reason. It was April 2023 when after six consecutive rate hikes, the RBI had opted to keep its benchmark lending rates unchanged at 6.5% and this has remained the rate for the past nine months since then.

Since the RBI repo rate has remained unchanged, there is no trigger for home finance institutions and banks to raise their lending rates, so the same repayment amount would be applicable. This is definitely a much better situation as compared to RBI raising repo rates and retail lending interest rates rising hiking the repayment amount also.

With the home seeker’s fund flow eligibility remaining stable, the identified ‘dream house’ remains within reach. The loan-to-value (LTV) ratio, which compares the amount of your home loan with the appraised value of the property, continues to be in your favour, which means your chances of getting funding are much better.

Elaborating on the advantages of RBI’s stance, G Hari Babu, National President, NAREDCO, said, “The RBI's choice to keep the repo rate unchanged reflects confidence in the country's economic fundamentals and growth prospects. With the GDP expected to grow at 7% in FY24, this announcement sets an optimistic tone for the new year. The unchanged repo rate also signifies a conducive environment for sustained growth in the real estate market, aligning with our collective efforts to foster economic development and will positively impact both residential and commercial segments. We remain committed to contributing to the robust growth of the real estate sector, particularly in affordable housing, buoyed by the positive indicators set forth in the RBI's monetary policy announcement. However, despite the pause, the current interest rate is at its highest in the last four years. We appeal to RBI to consider our request in its next review meeting.”

Pritam Chivukula, Vice President, CREDAI-MCHI, concurred. "The RBI’s decision to keep the repo rate unchanged at 6.50 per cent is in line with keeping inflation aligned with target while maintaining liquidity and supporting growth. The festive season has seen excellent housing demand from home buyers, with sales recording an all-time high. Recent government initiatives have been very supportive to the housing sector. The real estate market has been buoyant on the back of appropriate government intervention along with positive policy measures that will insulate the economy from global headwinds."

Sandeep Runwal, President, NAREDCO Maharashtra, commented that "The RBI’s decision to maintain status quo on the repo rates at 6.50 per cent is a welcome move. The RBI has effectively managed to keep inflation rates within acceptable boundaries. The positive sentiments being witnessed among home buyers and need for home ownership has been amply reflected in the excellent home sale figures generated in the past few quarters.  Also, the government has implemented a range of constructive policy measures that have sustained the housing sales momentum. It is our hope that these positive advancements will uphold the enthusiasm of home buyers, encouraging them to step forward and buy their dream home. We certainly see this healthy sales momentum continuing into the New Year as well. We hope for the repo rate reduction next year onwards."

Bhuvan Rustagi, COO and Co-Founder, Per Annum & Lendbox, opined, "Overall, we would consider this a “Hawkish Pause” by the central bank, most experts would agree with RBI’s decision to keep the rates unchanged given encouraging trends in inflation and steady economic growth, this pause is likely to continue until there are clearer signals about the inflation trajectory. This decision by the MPC signals a cautious approach balancing the need to control inflation while fostering economic growth, the possibility of future rate cuts depends on the evolution of key macroeconomic indicators, particularly inflation since RBI’s focus may be to bring inflation closer to its target of 4% before any further action".

The only question in the minds of home seekers, is whether a rate cut is on the cards in the near future. If that happens, 2024 will be a very, very Happy New Year indeed!

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