Housing Fin firms gear up to raise lending rates

A couple of days after the Reserve Bank of India raised key policy rates by 50 basis points, housing finance companies like Housing Development Finance Corporation, LIC Housing Finance, and Dewan Housing Finance are set to make their home loans more expensive.

According to the officials at some of these companies, the extent of the rise would at least 50 basis points.

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HDFC, for instance, is likely to raise its home loan rates from August 1, industry sources said.

It is expected the country's largest mortgage lender would raise rates by 25-50 basis points, since it kept its lending rates unchanged since May.

Earlier this week in a column for Business Standard, HDFC vice-chairman and chief executive Keki Mistry said, "Clearly, at this juncture, RBI remains steadfast in its single key objective of anchoring inflationary expectations.

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"However, the 50-basis point increase does seem sharp. While rates will obviously tread higher as a result of today's measures, one must reiterate that the demand for home loans would continue."

HDFC had, last raised its retail prime lending rate by 50 basis points on May 16.

The lender currently charges 10.25 per cent for home loans up to Rs 30 lakh, 10.50 per cent for loans between Rs 30-75 lakh (Rs 3-7.5 million) and 11 per cent for loans above Rs 75 lakh (Rs 7.5 million).

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LIC Housing Finance, the second-largest housing finance company in the country, is likely to pass on the entire rise to its customers.

"We would take a call on the interest rate in a couple of days when the asset-liability committee meets. However, having said that, whatever is the increase (in our borrowing cost), it is likely to be passed," said LIC Housing Finance chief executive VK Sharma.

According to industry estimates, total mortgage advances in the country during 2010-11 is expected to rise 30 per cent to around Rs 1.5 lakh crore (Rs 1.5 trillion) from Rs 1.15 lakh crore (Rs 1.15 trillion) in 2009-10.

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While banks account for 70 per cent of these loans, HFCs command the remaining portion of the pie.

On Tuesday, RBI, in its quarterly monetary policy, raised the repo rate, or the rate at which it lends to commercial banks, by 50 basis points to eight per cent.

The reverse repo rate, or the rate at which RBI borrows money from commercial banks, was also raised by the same margin to seven per cent.