The low interest rates on home loans are driving up housing demand. Real estate developers and consultants applauded the RBI’s decision to maintain policy rates unchanged on Thursday, claiming that historically low-interest rates on home loans will continue to drive demand for residential properties. They also encouraged potential homebuyers to enter the market.

Housing demand increased by 50-70 per cent in the last calendar year across 7-8 major cities, owing to factors such as low-interest rates on home loans, builder offers-freebies, and stable property prices in the previous five years.

On February 10, the Reserve Bank of India (RBI) maintained its key lending rates at record low levels for the tenth consecutive meeting to support the economy’s long-term recovery from COVID-19. 

According to real estate experts, the housing market has recovered well from the COVID-19 crisis, and low-interest rates will aid in improving affordability and maintaining the growth momentum.


low interest


1. How will low interest rates on home loans benefit homebuyers?

2. Is now a good time to buy a house in India?

1. How will low interest rates on home loans benefit homebuyers?


low interest rates

Numerous consumers apply for home loans today, and therefore interest rates on home loans are an important factor in determining market conditions. Interest rate cuts have a significant impact on consumer behaviour patterns and the amount of consumption that an economy can expect. Borrowing becomes more affordable when interest rates fall, making large purchases on credit, such as home mortgages or credit card bills, more affordable. Borrowing, on the other hand, becomes more expensive when interest rates rise, stifling consumption. Higher rates, on the other hand, benefit savers by providing higher interest rates on deposit accounts.

While the availability of lower-cost home loans is not the only factor driving the real estate market, it is an essential factor that home buyers consider before deciding to purchase a home. The affordable housing market is already seeing increased demand, which is being fuelled even more by the fact that home loan interest rates have bottomed out and are near a decade low. Homebuyers in the affordable and midsegment are likely to accelerate the home-buying process.

Stamp duty reductions and all-time low-interest rates have helped in easing a buyer’s investment process. Existing buyers may benefit from the rate cuts by allowing them to switch to lower home loan rates. The current low-interest rates have also created a favourable environment for first-time homebuyers to invest in real estate.

2. Is it a good time to buy a house in India now?


low interest home

A smaller gap between rental yields and home loans creates a more favourable environment for home purchases. In most mature property markets around the world, the difference between rental yields and borrowing costs is less than 100 basis points. The only comparable real estate market to India is China, where the difference is around 300 basis points. In India, the gap has shrunk from 800 basis points to around 500 basis points. As a result, there is a widespread belief that lower borrowing costs will lead to an increase in property transactions.

However, in a pandemic-affected economy where economic survival is critical, many other variables must be considered before concluding that lower borrowing costs are the primary demand driver. Mohan and Sheth’s concerns show that job market conditions and inflation are more important than borrowing costs. In terms of the returns on savings, low-interest rates have an impact on household savings.

Following interest rate cuts, the loan market has grown in terms of volume rather than value in recent times. For home buyers, the LTV (Loan to Value) ratio has decreased, as has the lender’s DTI (Debt to Income) ratio. So, while the overall home loan environment appears to be favourable for home buyers, the magnitude of economic uncertainty is the variable that has everyone concerned. Thus, the decision to purchase a home will be determined by one’s ability to navigate the pandemic-ravaged economy.

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