Home purchases become expensive
By Joseph Samson
Nov 3, 2008
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People planning to finance their home through a bank loan may have to give a second thought as banks have started raising the margin money for home loans.

Margin money is the percentage of purchase price that the buyer has to pay at the time of purchase. The bank finances the amount remaining after this payment. Banks are now raising this percentage to as high as 40%.

The realty market is already on a downturn and causing a slowdown in the demand for residential property. This hike in money margin is likely to discourage the demand further.

The margin money has been raised by 5 to 25 percentage points by most of the banks. SBI increases its margin money to 25% from 20% for loans amount up to Rs 30 lakh. For loans between Rs 30 lakh and Rs 1 crore, the margin money is raised to 30% from 20% earlier, where as for loan amount exceeding Rs 1 crore the margin is increased from 25% to 40%.

An official from SBI said, "We have increased the margin requirement in order to secure our advances from any price fluctuation in the market. Also, the requirement of higher margin money would ensure that only reasonably sound and credit-worthy borrowers are provided advances. This in turn would help keep the risk lower."

Although the private sector lenders, ICICI Bank and HDFC Bank, have not increased the margin money but they have tighten their norms for lending and deciding the borrower's creditworthiness.

ICICI Bank official said, "We have not made any changes in the margin money requirement for home loans as we have been fairly prudent in our lending process."

Officials form HDFC Bank said that they did not require any urgent changes in the margin money as most of their home loans in the past one year have already averaged around 65% of the property cost. Also the bank is extending credit to only financially sound customers.

Revision in the money margin and lending norms come at a time when the realty market is already subdued. Earlier around 85% of the loan amount could be received but now the borrowers have to pay up to 40% of the loan amount.

Above the property demand is hampered by the interest rates charged by the banks. Banks have decided to keep their rates unaltered for now.

Canara Bank Chairman and Managing Director A C Mahajan said, "We will maintain a status quo (on home loan rates). I don't find any scope to reduce my lending rates unless deposit rates come down."

Even the country's largest lender has announced to keep its lending rate unchanged. Moreover some like ICICI Bank have raised the home loan rates for new borrowers.

Vijaya Bank Executive Director S C Kalia said, "Banks may not have the ability to cut lending rates. I think interest rates should be stable at this level, unless deposit rates come down."

All these reasons proved a little disappointing for the home buyers who kept waiting for a rate cut in this festive season.


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