The Union Bank of India (UNI) on Tuesday, froze the lending rates for new home loans up to Rs 50 lakh at 8 per cent for one year. The scheme is valid for lending up to September 30, 2009. The rate of interest will remain fixed for the first year, after which it will be reset to retail benchmark rate, the Floating Reference Rate (FRR) till the repayment of full sum. The maximum tenure of the loan will be 20 years.

TY Prabhu, executive director, Union Bank of India said, "As property prices have stabilised in the tier II and tier III cities, the demand is likely to pick up strongly in these pockets. So it is a good time to expand our portfolio now. The bank expects to disburse Rs 1,500 crore of home loans under the new scheme. The bank home loan book is 8 per cent of its total advances at Rs 7,000 crore".

With demand for corporate loans dipping, Public Sector Banks (PSB) have considerably reduced the lending rates for consumer loans in an attempt to expand their retail loan portfolios. SBI launched happy home loan scheme, in February this year offering home loans at rate of 8 per cent irrespective of the loan period. In a similar move, Canara Bank offered home loans with fixed rate 8.25 per cent for the first year, 9.25 for the subsequent four years and at 10 per cent for the remaining loan tenure. Subsequently, on April 30 PNB came up with a home loan scheme, offering home loan up to Rs 50 lakh at 9 per cent for the initial five years, following which a reset clause would come into effect.