HFCs may give Home Loans at lower rates

APRIL 12, 2007: The government is planning to seek long-term loans from multilateral finance institutions such as World Bank and Asian Development Bank (ADB) to provide credit to domestic housing finance companies (HFC) at competitive rates. This would enable housing finance companies to provide home loans to customers at a much lower rate.

A proposal from 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 the specific use

The new mechanism is being considered to cool down the cost of finance for 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 one year. The current cost of fixed-rate home loans varies between 12% and 14%. The rates under floating option are slightly lower. Under the new system, housing finance companies could access funds at much lower rates of 5-8%. This would enable them to 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 the proposal forward, a Planning Commission working group had earlier suggested the same to give a boost to the housing sector.

Source: economictimes