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NEW DELHI: Interest rates on home loans in India are set to go up as the country's central bank recently hiked its lending and borrowing rates by 25 basis points.
This will affect the budgets of families already battered by high inflation.
Moving into their own home after 10 years was a dream come true for Mr Ravindranathan and his wife Ms Reshmi.
But the dream is slowly turning sour for the Delhi-based social researchers.
Mr Ravi booked a flat with the Delhi Development Authority two years ago, for which he took a home loan of about US$55,000.
With the global downturn and rising costs, though, much has changed in these last two years.
His loan has gone up by three percent but his income has not risen much.
He says 70 percent of his and his wife's salary goes towards repaying the loan, leaving little for their household budget.
Mr Ravi said: "The slump happened. Housing sector and everything was in trouble. Slowly inflation went up and interest rates too went up. We ended up paying in six months to a year around 12.5 percent."
Ms Reshmi Bhaskaran said: "You want to maintain a certain quality of life, but when there is cost involved, it is very difficult. You either have to ignore or close your eyes towards many things you want to enjoy. I don't know how long we can go on like this."
Soon more people like Mr Ravi will be shelling out extra money on their equated monthly instalments.
Interest rates on home loans are on an upswing in India.
After the central bank's monetary policy tightening last November, most banks had hiked their interest rates by around a quarter percent.
This time too the RBI has hiked its key policy rates to contain soaring inflation and banks are expected to soon revise their lending and deposit rates.
Chanda Kochhar, managing director and CEO of ICICI Bank, said: "The deposit and lending rate increase depends on how the cost of fund is moving and how the supply and demand of money are moving. In that sense, the cost of deposit is going up. There is clearly an upward bias in interest rates."
Along with interest rates, property prices too remain high.
According to brokers, the real estate sector would remain bullish this year because of rising input costs.
Land costs at some prime metro locations have crossed even the pre-global crisis peak levels.
This has forced many home buyers to postpone their plans as they rework their monthly budget.
At present, many banks lend at close to 9.5 percent interest rate to new borrowers.
But those who took home loans around five years ago are paying over 12 percent, following successive rate hikes.
As the central bank fights inflation, further monetary action is possible, which might make owning a home a distant dream for many Indians.
- CNA/ir
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