Home loan rates may get cheaper in the days to come

Real estate is an expensive affair. You need money and plenty of it. You are lucky you may have all the money you need to buy the house in one shot. But not all of us are born with a silver spoon so we have to make do with home loans to buy our house. Home loans come with hefty EMIs and interest rates. Sometimes the principal and the interest we pay on the said principal work out to about the same. So who decides how much interest you have pay on your home loan. Well it’s the Reserve Bank of India otherwise known as the RBI. The bank control the repo rate which is the key lending rate at which it lends money to the other banks. It is up to the RBI whether it lowers the rate or hikes it. It takes these decisions based on the current economic condition of the country. The RBI has for the past two years been cutting the repo rate. The central bank has cut the rate by 175 basis in the last two years alone. But in its latest bi-monthly review it took a stand and held the repo rate at 6.25%. This was a shocker as many economists had expected the bank to cut the rate by another 25 basis points to 6% which would have been the lowest in the last six years. But this does not mean that properties such as apartments and villas will still cost more. Far from it actually. Let’s understand why. The RBI has taken stock of the economic situation worldwide and in the country as well and come to the conclusion that in the present economic climate a repo rate cut is not required. It has factored in the demonetization of the economy this time. This process is predicted to have a negative impact on the economic scenario of the country. So the RBI has adopted a wait and watch policy. It has taken into account inflation and the global crude oil prices as well into account. It has changed its monetary stance from “accommodative” to “neutral.” This means that future rate cuts are also might not happen at the pace at which it has been happening in the last two years. So why is this not particularly bad news for those who want to buy apartments and villas? Common sense would say that if the repo rate is lower it is better for the home buyer. And this true. But in this case the demonetization drive has actually worked in the favour of the home buyer. It has pumped money into the banking systems. The banks which are presently flush with funds have cut home loan rates to an extent. And the best part is that there is still more scope for rate cuts from these banks. They have still yet to pass on the cuts done by the RBI. So home buyers may have come cheaper homes coming to them in the future.