<div><em>Move to give fillip to low-cost housing segment as for loans of up to Rs 30 lakh, the loan-to-value (LTV) ratio will be 90. <strong>BW Online Bureau</strong> reports</em></div><div> </div><div>In order to boost demand for low-cost housing and to encourage builders to focus on this housing segment, the Reserve Bank of India (RBI) has reduced the risk weight for individual housing loans of up to Rs 75 lakh. The minimum risk weight for individual housing loans has been reduced from 50 per cent to 35 per cent. For loans of up to Rs 30 lakh, the central bank has increased the loan-to-value (LTV) ratio to 90. LTV is the highest loan amount a bank can disburse, as a proportion of the property price.</div><div> </div><div>Last month RBI had said risk weights would be reduced to boost affordable housing. </div><div> </div><div>In simple terms this move from RBI means banks will prescribe lower risk weights where the borrower brings higher contribution. This is expected to free up capital for banks to give more loans. As an example, if a house costs Rs 30 lakh and the borrower can bring in Rs 6 lakh upfront (20 per cent of the home value) then the bank will provide a loan of Rs 24 lakh.</div><div> </div><div>Lower risk weight means that the capital costs will come down as the banks will have to provision lesser capital. According to the new RBI norms, for loans of up to Rs 30 lakh (where LTV is up to 80 per cent), the risk weight will be 35 per cent. Where the LTV for loans is 80-90 per cent, the risk weight will be 50 per cent, RBI notification issued on October 8, 2015 said. </div><div> </div><div>In the Rs 30-75 lakh loan bucket with LTV of 75 per cent, the risk weight will be 35 per cent (earlier it was 50 per cent). For an LTV of 75-80 per cent, the weight will be unchanged at 50 per cent. For loans exceeding Rs 75 lakh where loans don’t exceed 75 per cent of the value, the risk weight has been kept unchanged at 75 per cent.</div><div> </div><div>However, the risk weight for commercial real estate has been left unchanged at 100 per cent.</div><div> </div><div>Bankers said this move will boost the demand for low-cost housing segment as increasing loan-to-value will encourage builders to build more houses in this segment. </div><div> </div><div>“At present, the minimum risk weight applicable on individual housing loans is 50 per cent. To improve affordability of low-cost housing for economically weaker sections and low-income groups and give a fillip to ‘housing for all’, while being cognisant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans,” the central bank had said.</div><div> </div><div>The move by RBI comes at a time when the property sector is battling a prolonged slowdown amidst a drastic drop in new project launches, new sales and growing unsold inventory. </div><div> </div><div>Welcoming the move Manoj Gaur, President, CREDAI-NCR said this was a significant step especially in a significant real estate market like the Delhi NCR where consumer confidence is very low. "This may act as a trigger to improve the overall sentiment,” said Gaur.</div><div> </div><div><strong>As a buyer: </strong>There are two important developments in the recent RBI move. One, home loan seekers in the range of Rs 20-Rs 30 lakh stands to gain the most and secondly, those ready to pay high down payment irrespective of the loan amount also gains. Let’s see how.</div><div> </div><div>The biggest beneficiary has been the home loans takers between Rs 20 and Rs 30 lakh as the LTV is now 90 percent for them, up from 80 percent. Earlier they had to arrange down payment of 20 per cent but now, it’s only 10 percent. Property buyers in tier I cities may not have much to cheer about as home prices for a decent 2BHK is well over Rs 30 lakh anyways.</div><div> </div><div>Another interesting feature of RBI’s latest move in reducing risk weightage is creating more room for banks to cut rate within the loan categories. This wasn’t there in the past. In loans up to Rs 30 lakh if LTV is up to 80 percent, banks have to keep lower risk weightage of 35 per cent, than compared to someone taking loan with LTV 90 per cent. Similarly, for loans between Rs 30 lakh and Rs 75 lakh, banks have to keep lower risk weightage of 35 per cent, than compared to someone taking loan with LTV 90 per cent. This is true in loans above Rs 75 lakh too. Banks therefore can offer much lower rate to those bringing more of own funds. In a way, banks are transferring risk to buyers and thus are able to offer lower rates. It remains to be seen, how aggrieve are banks in their pricing now. </div><div> </div><div>Banks should now be offering variable rate depending on how much of own funds the individual is ready to pay up. As a home loan seeker, try negotiating for rate and try keeping LTV 80 percent or less. Unlike in the past, now there’s an additional incentive to provide higher down payment to bank while getting the loan sanctioned.</div><div> </div>
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