Banks are increasing their financing margins. Financing margin is the percentage of property value that a borrower has to pay. Now the home loan borrowers have to make a higher down payment on loans.
Punjab National Bank, Union Bank of India and Indian Bank has already increased their financing margins.
Now Punjab National Bank is financing up to 75 per cent of the cost of construction or the purchase value of a property as compared to 85 per cent earlier.
Earlier Union Bank was financing 85 per cent of the property cost now the bank will finance 80 per cent which means increase in its margin requirement for home loans to 20 per cent from 15 per cent.
While Indian Bank will be financing up to 80 per cent for all fresh sanctions of housing loans of above Rs 20 lakh from April this year.
S. Govindan, deputy-general manager of Union Bank said, “Our cost of capital has increased substantially in the past couple of years. We have to increase the margin requirement because then we can offer home loans below Rs 20 lakh at less than 10 per cent interest rate”.
However the increased margin requirement by banks has been, balanced by lower lending rates of between 9 per cent and 9.75 per cent for home loans of less than Rs 20 lakh for up to 20 years.
In fact Banks who are still financing up to 85 per cent are charging a higher interest rate of between 10 per cent and 11.25 per cent for loans below Rs 20 lakh. Though, customers can bargain for lower interest rates if they opt for greater down payments.
The SBI is giving a 0.15 per cent discount on the interest rate to the borrowers who are paying 25 per cent, instead of 15 per cent, of the purchase price of the property. Or else the bank charges between 10 per cent and 10.50 per cent floating interest rate for loans below Rs 20 lakh.
“Banks are already charging 25 to 75 basis points (100 basis points is equal to one percentage point) more for loans above Rs 20 lakh and the minimum margin requirement is also higher at 25 per cent for these loans. For loans of less than Rs 20 lakh, borrowers should be ready to pay more upfront to get a lower interest rate,” said a public sector bank official.
Wednesday, April 16, 2008
Monday, April 7, 2008
DSA: “Banks are becoming stricter on sanctioning home loans”
Now day’s banks are becoming stricter on sanctioning of home loans. Direct selling agents (DSAs) of banks said that almost all banks are becoming stricter on sanctioning home loans. “We have been specifically asked by banks to reduce the loan amount,” said the head of a DSA.
Recently there has been an instance where Irene D’Souza’s (name changed) broker had got her a home loan of Rs 18 lakh approved from ICICI Bank. However, when she went for the cheque, she was told that only Rs 9.53 lakh would be disbursed. Now she has approached another bank, in spite of her producing all the supporting documents of income bank told her that it will sanction Rs 16 lakh, but the broker has to stand as a guarantor.
D’Souza's is not an isolated case. Banks are using various methods to do it. One such method is reducing the loan-to-value (LTV) ratio in an indirect manner. That is, if the house costs Rs 20 lakh, normally the bank provides 80 to 85 per cent of the cost of the house, which would be to the tune of Rs 18 lakh.
Most of the banks are now valuing the house much lower so that though the loan-to-value stays same, the amount disbursed is lower.
For instance, if the same home is valued at say, Rs 15 lakh, the bank disburses around Rs 12 lakh. Effectively it means that the bank has disbursed only 60 per cent, instead of the 80 per cent.
Rajeev Sabharwal, head, retail sales, ICICI Bank said, “We have not changed any policies on the LTV to give us any extra cushion, but sometimes the valuation of a property genuinely goes down.”
According to him, bank officers go and check the prices of the area before sanctioning the loan. As per the sources the legal and technical teams that visit the site before the loan sanction are instructed to be stricter.
Indeed, some banks have even started using the “Ready Reckoner” issued by the government that gives the price of a certain area, based on the stamp duty paid by property buyers in that area.
KVS Manian group head, retail liabilities, Kotak Mahindra Bank said, “All banks are bringing down their exposure in overheated areas. Earlier, banks were willing to aggressively finance even up to 95 per cent, now it is down to 75-80 per cent.”
Apart from the above one there are some other measures as well that banks are following severely. For instance, if there is a cash down payment through a personal loan from a relative, they are insisting on the bank statements of the relative.
“Sometimes, buyers take personal loans to fund the initial down payment, thereby making it difficult for him to service all kinds of loans,” added Manian.
Also, they are belligerent going through the financial details of the customers. There is a clear indication that for potential home loan borrowers buying their dream house is going to be tough.
Recently there has been an instance where Irene D’Souza’s (name changed) broker had got her a home loan of Rs 18 lakh approved from ICICI Bank. However, when she went for the cheque, she was told that only Rs 9.53 lakh would be disbursed. Now she has approached another bank, in spite of her producing all the supporting documents of income bank told her that it will sanction Rs 16 lakh, but the broker has to stand as a guarantor.
D’Souza's is not an isolated case. Banks are using various methods to do it. One such method is reducing the loan-to-value (LTV) ratio in an indirect manner. That is, if the house costs Rs 20 lakh, normally the bank provides 80 to 85 per cent of the cost of the house, which would be to the tune of Rs 18 lakh.
Most of the banks are now valuing the house much lower so that though the loan-to-value stays same, the amount disbursed is lower.
For instance, if the same home is valued at say, Rs 15 lakh, the bank disburses around Rs 12 lakh. Effectively it means that the bank has disbursed only 60 per cent, instead of the 80 per cent.
Rajeev Sabharwal, head, retail sales, ICICI Bank said, “We have not changed any policies on the LTV to give us any extra cushion, but sometimes the valuation of a property genuinely goes down.”
According to him, bank officers go and check the prices of the area before sanctioning the loan. As per the sources the legal and technical teams that visit the site before the loan sanction are instructed to be stricter.
Indeed, some banks have even started using the “Ready Reckoner” issued by the government that gives the price of a certain area, based on the stamp duty paid by property buyers in that area.
KVS Manian group head, retail liabilities, Kotak Mahindra Bank said, “All banks are bringing down their exposure in overheated areas. Earlier, banks were willing to aggressively finance even up to 95 per cent, now it is down to 75-80 per cent.”
Apart from the above one there are some other measures as well that banks are following severely. For instance, if there is a cash down payment through a personal loan from a relative, they are insisting on the bank statements of the relative.
“Sometimes, buyers take personal loans to fund the initial down payment, thereby making it difficult for him to service all kinds of loans,” added Manian.
Also, they are belligerent going through the financial details of the customers. There is a clear indication that for potential home loan borrowers buying their dream house is going to be tough.
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