Getting home loans still not easy

New Delhi: Despite interest rates easing, people are still finding it difficult to take a home loan. Reason: Banks now insist that borrowers need to contribute 20-30% of the value of the property upfront, instead of 10-15% earlier.
As the finance proportion of the banks has come down from 85-90% of the property value to 70-80%, borrowers (mainly the younger lot) are finding it difficult to go for a home loan. SBI, which has brought down its home loan rate to 8%, lends only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. If the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. Punjab National Bank (PNB) lends 75% of the loan for a property of above Rs 20 lakh. Other PSU banks like Union Bank and UCO Bank also lend only up to 80% of the value of the house. Private sector banks like ICICI Bank ask for 20-30% buyer’s contribution while giving a home loan.
The average price of a three-bed room apartment in metros like Mumbai, Delhi/NCR and Bangalore is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. So, the buyer’s contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. For a young buyer (in the age group of 30-35 years), it acts as a deterrent. However, bankers are not really bothered. UCO Bank executive director T M Bhasin said as real estate price is declining, banks have increased the buyer’s contribution so that the market value of the property should not fall below the loan amount during the course of repayment. He said if the bank lends 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will become more than the value of the property taken as security.
In that scenario, the borrower can decide to walk off—surrender the house to the bank, and saying recover the money by selling the property. To avoid this, the bank has increased the buyer’s contribution. And this factor has played a big role in the current US crisis.
CAUGHT IN TRAP
Borrowers now need to contribute 20-30% of the value of the house upfront, instead of 10-15% earlier
So, buyer's contribution for a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier
EMI limit has been reduced to 40% of monthly income, from 50% earlier