Although the interest rates are reducing in the industry, yet home loan borrowers have no reason to respite. These aspirants are finding it hard to take loans because banks have reduced the percentage of property value that will be extended as a loan.
Earlier the borrowers had to bring only10% to 15% of the property upfront but now they are required to contribute 20% to 30% as banks have reduced their contribution to 70% to 80% from the earlier 85% to 90% of the property price.
For instance the largest lender, SBI only extends 80% of the property value if the loan is between Rs 20 lakh and Rs 75 lakh where as only 75% of the amount is given if the requirement is of more than Rs 75 lakh. The bank has revised down its home loan rates to 8%.
Similarly Punjab National Bank (PNB) lends only 75% of the house if the loan amount exceeds Rs 20 lakh. Other state-run banks such as Union Bank of India and UCO Bank are also lending to a maximum of 80% of the value of the house.
On the other hand, private sector banks such as ICICI are asking borrowers to contribute 20% to 30% of house price while extending a loan.
As result of this, borrowers who want to purchase a house of Rs 40 lakh has to bring Rs 8-10 lakh as compared to Rs 4-5 lakh brought earlier. This factor is acting as a major obstruction in the path of a home loan aspirant but banks are not concerned about the same.
UCO Bank Executive Director, TM Bhasin said that in the wake of declining real estate prices banks are taking such a move to avoid the market value of the property from falling below the loan amount during the repayment period. He explained that if the bank extends 85% as a loan and the market value of the house falls by 20% within six months then the loan amount will exceed the value of the property that is kept as collateral. Consequently the borrower will surrender the house and banks will find it hard to the recover money by selling the property. Therefore to avoid such a situation, banks have raised the borrower's contribution in the property price.
Moreover the sub-prime crisis has compelled banks to take such a step. They had extended to almost 90% of the property price but as the market price dropped below the outstanding loan amount, borrower surrendered their properties that banks found difficult to recover.
Besides the banks are also reducing the extent of amount that could be used as an EMI. Earlier EMI of up to 50% of monthly income of the borrower was permitted by the banks but with the reduction of this proportion to 40%, situations have turned worse for the prospective buyers.