Buying First House, Cheers!

THE government is planning to seek long-term loans from multilateral finance institutions like ADB and World Bank to provide credit to Indian housing finance companies at competitive rates. This would enable housing finance companies to provide home loans to customers at a much lower rate. This facility is being considered to provide cheap loans to first time home buyers.

“We are considering a proposal to provide housing finance companies direct access to cheaper credit contracted by the Centre from multilateral institutions for building infrastructure. Though the proposal is at initial stages of discussion, the issue is being pursued seriously to provide relief to home loan segment,” an official of housing ministry told ET.

A proposal from the housing ministry to offer cheaper loans to first-time home buyers is under consideration of the finance ministry. Once approved, the Centre would work out details of loan agreements with multilateral institutions for this specific use, the official said.

The new mechanism is being considered to cool down the cost of finance for the housing sector. If it materialises, the step would come as a major relief to consumers who have seen a spurt in interest rates due to high inflation.

Home loan rates have moved up between 200 percentage points and 300 percentage points since the last one year. The current cost of fixed rate home loans varies between 12% and 14%. The rates under floating option is slightly lower than this. Under the new system, housing finance companies could access funds at a much lower rates of about 5-8%. This would enable them offer home loans at less than market rates even if a premium is charged on funds secured from multilateral agencies.

While the housing ministry is taking forward the proposal, a Planning Commission working group had earlier suggested the same to give a boost to the housing sector.

Via [TOI]