To make it easier for the buyers to realize their dream of owning a home, the government is taking regular steps in this direction. The significant reduction in repo rate at the beginning of this financial year and a lesser risk weight are a few initiatives taken by the government. In another attempt to bring relaxation to the housing finance segment, the RBI has increased the amount of loans the banks can give against a property purchase.
Earlier the banks could give out only 80% of the property’s value as loan; 90% of the value was allowed but only for properties costing less than 20 lakhs. Now this Loan to Value (LTV) figure has been increased to 30 Lakh. Banks can now give out 90% of the value as loan for properties costing less than Rs 30 Lakh.
In a notification issued by the RBI on October 8, the LTV ratios for different property segments were made clear. For less than 30 Lakh, the LTV will be 90%. For properties ranging between 30-75 Lakh, the LTV will be up to 80% and for properties above 75 Lakhs, the ratio would be 75%. The minimum risk weight norms for the home loan lending banks have also been changed to relax the housing finance.
The Loan-to-Value (LTV) is the ratio of the amount you want to borrow for the purchase of the property to the actual value of the home. It can be calculated on the basis of total cost of the property and the down payment been made. For example- If the property is worth 50 Lakh and a down payment of 10 Lakh has been made. The LTV is 80% thus the bank will lend 40 Lakhs.
This rectification in home loan norms is beneficial for the first time home buyers and for the middle class buyers who wish to buy a home in 20-30 Lakh bracket. In addition to the overall efforts of the Reserve Bank, the banks like SBI and ICICI are also adopting certain base point reduction to help homebuyers. However, the differential rate cut for existing customers and new customers has not gone down well with the RBI. The matter has come under the lens of RBI and actions will be taken in this regards.
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