Home Loan EMIs to Increase As RBI Hikes Repo Rate To 6.5%

Home loans are likely to get costlier after the current hike in RBI’s benchmark lending rates.

The Reserve Bank of India (RBI) on February 8, 2023, increased the repo rate by 25 basis points to bring its benchmark lending rate to 6.50%. The hike in rates would prompt scheduled banks in India to increase lending rates, including home loans.

While 4 members of the 6-member rate setting panel voted in favour of the hike, the remaining 2 voted against it.  

Concluding a 3-day meeting of the MPC that started on February 6, RBI Governor Das also said that the MPC had decided to withdraw the accommodative stance as the "situation does not look so grim now".

Impact on home loans

Each time the repo rate is increased, it is followed by an equal increase in deposit as well as loan interest rates. If banks in India increase the home loan interest rates by 25 basis points, borrowers will see their home loan EMI go up by a couple of thousands.

SBI customers who are currently paying a monthly EMIs of Rs 21,824 for a home loan of Rs 25 lakh for a 20-year tenure, will have to pay Rs 22,253 per month after the hike.  If the tenure of the same loan is 30 years, the EMI would increase to Rs 19,846 from 19,400 per month.

However, developers are of the view that the hike in rates will not have any significant impact on real estate, especially on the luxury housing segment.

“The interest in homeownership has increased in recent times… this trend is expected to continue in 2023, given change in lifestyles. The hike will not have a significant impact on luxury housing as the demand of home buyers in this segment is beyond these considerations,” says Lincoln Bennet Rodrigues, chairman & founder, The Bennet and Bernard Company.

Some others have a different view on the matter.

“There is no denying the fact that the increase in the repo rate would definitely impact housing affordability. The repeated rate hikes may have a short-term impact on overall housing demand and the buyers’ overall acquisition cost would go up. This comes at a time when the real estate sector has shown recovery across important property markets driven primarily by end-users, and this hike may again impact the rate-sensitive sector,” says Ramani Sastri, chairman and managing director, Sterling Developers.