Home affordability for buyers falls 11% after latest RBI repo rate hike: Knight Frank India


The current interest rate hike cycle started on May 4, 2022, when the Reserve Bank of India (RBI) increased the repo rate by 40 bps. This was the first hike in repo rate after almost a gap of four years. The May hike was followed by another rate hike in June where the RBI increased the repo rate by 50 bps. And today, on August 5, the RBI hiked the repo rate again, for the third time, by 50 bps. As a result, within last 93 days, the central bank has increased the repo rate by a total 140 bps (50+90).

This has meant that banks and other lenders have been increasing home loan interest rates and been swiftly passing it on to borrowers. “So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate. Today’s rate hike will further harden the rates. For the real estate sector specifically, the third subsequent rate rise will mean a deterioration of affordability and may impact the sentiments of home buyers. With the cumulative rate hike until today, assuming complete transmission, a prospective home buyers’ affordability shrinks by around 11% i.e. from an ability of purchasing a house of Rs.1 crore value shrinking to Rs. 89 lacs now,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India.

Here is how your home loan EMIs have been impacted after the latest repo rate hike: If you have a home loan with Rs 30 lakh outstanding with a balance tenure of 20 years at 8% pa interest, your EMI will go up by Rs 941 from Rs 25,093 to Rs 26,034. For each lakh rupee of loan, you may have to dole out Rs 31.37 extra for EMI.

“Developers are expected to undertake mitigating measures to soften the blow on homebuyer affordability. The increase of interest rates and the subsequent transmission of these into the home loan rates, while has the capability of impacting demand, we hope that the latent demand for housing will soften the impact of the latest change in the REPO rates,” said Baijal.



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