Home loan to get more expensive as housing finance cos raise lending rates

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Home loan rates to get more expensive as major lenders Housing Development Financial Corporation (HDFC), PNB Housing Finance raised their home loan ratios by up to 20 basis points (bps) and 25 bps respectively.

HDFC's revised home loan interest rates now range from 8.4 per cent to 8.7 per cent, whereas PNB Housing Finance's is from 8.4 per cent to 11.75 per cent.

Indiabulls Housing Finance also raised its home loan rates by up to 20 bps in the previous week and their loan rates start from 8.45 per cent now.

Country's largest lender State Bank of India's home loan rates are between 8.35 per cent to 8.9 per cent and Private sector ICICI Bank's range from 8.45 per cent to 10.2 per cent.

Liquidity pressures have increased the cost of funds for the housing finance companies. "In the last 4-5 months ever since September 2017, the yield curves have moved up by 40-50 bps and it was time that we correct our rates," said Sanjaya Gupta, Managing Director, PNB Housing Finance.

Housing Finance Companies (HFCs) said that the loan rate hike was a transmission of their rise in cost. "We always try to maintain our RPLR spread. When the cost of our funds go up, we have to increase lending rate and vice-versa," said a senior executive at HDFC.

"We are a pass-through vehicle, we pass our market borrowing cost on to our customer," said Ashwini Kumar Hooda, Deputy MD at Indiabulls Housing Finance. Indiabulls Housing Finance also said that the hardening of yields severely affected their cost of funds as they are mainly a borrower from the bond market.

While liquidity is seeing a slight uptick recently, it will not have an impact on home loan rates. "This is a long term product and not a cash product which depends on daily balances. Our borrowings are also long term or medium term. One does not peg a home loan to an overnighter but to the corresponding borrowing mix or yield curve. One or two day softening of yield curve doesn't matter," said Gupta.

Both Gupta and Hooda said that rates will be stable for the next six months. Executives said that the loan rates would be influenced by international market conditions and oil prices. "If RBI policy is to be trusted, there is no scope for rate hike," said Hooda.

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