Why your home loan just got a little more expensive

A recent notification from the Reserve Bank of India directs banks to exclude stamp duty, registration and other documentation charges while calculating the value of a property

FP Editors February 06, 2012 11:47:17 IST
Why your home loan just got a little more expensive

No, interest rates have not been hiked (thank God for that!).

But a recent notification from the Reserve Bank of India directs banks to exclude stamp duty, registration and other documentation charges while calculating the value of a property could lead to borrowers shelling out more in terms of their own funds.

Why your home loan just got a little more expensive

Buyers of homes in the Rs 20-70 lakh bracket will get hit further. Reuters

According to the RBI, several banks had been adopting different practices to calculate property values while sanctioning home loans.Some of them included the cost of stamp duty, registration and other documentation charges in their property value assessment, it noted.

"This overstates the realisable value of the property as stamp duty, registration and other documentation charges are not realisable and consequently the margin stipulated gets diluted," the notification said. "Accordingly, banks should not include these charges in the cost of the housing property they finance so that the effectiveness of LTV (loan-to-value) norms is not diluted."

Current regulations permit banks to lend up to 80 percent of a home loan above Rs 20 lakh and up to 90 percent for loans below Rs 20 lakh.

If the above-mentioned charges are excluded, property values will be estimated lower by banks. That will reduce the amount of loans that borrowers can get - and increases the cost of buying property.

"I think buyers of homes in the Rs 20-70 lakh bracket will get hit further and sales in this segment could fall by a further 5-10 percent," Sanjay Dutt, chief executive, real estate consultancy Jones Lang LaSalle, toldBusiness Standard.

It will be another blow to the real estate industry, already suffering from falling consumer demand. For home buyers also, the new regulation will add to costs even as borrowing costs and property prices remain high.

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