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Home Remedy: First house loan may get rate discount

The first house meant for self-occupancy can be eligible for a loan at a lesser rate than normal

Apnaloan.com Research Bureau

10 Aug 2007

New Delhi: Amid increasing home finance interest rates, the urban housing ministry has mooted a proposal to provide loans at a discounted rate for first-time home buyers in urban areas.

The interest discount would, however, be available only to families or individuals falling in a specified salary bracket and would be based on the affordability factor. The ministry has proposed that banks and housing finance companies could extend a discount of 1-2% to a family buying a house for the first time.

Urban housing minister Kumari Selja confirmed the move. "Addressing the problem of urban housing shortage at an affordable price is our prime concern. With this in mind, we are working on various short and long-term strategies. Interest rate subsidy for people with low affordability is also a part of the strategies," she told ET.

The discount offered by financiers would be met through interest subsidies provided in the Union Budget. Said a ministry official: "Financing home loans through interest rate subsidy will require a huge contribution from the Centre's coffers.

The ministry is learnt to be working on the details and modalities of the proposal, which will come up for discussion next month with the finance ministry and the Reserve Bank of India (RBI). Although the government is yet to define the salary bracket of those who would be eligible for the discounted interest rate, it is likely to primarily target the economically weaker sections.

The proposed discounted rates for home loan seekers is also aimed at checking speculation in the realty markets. According to a housing ministry official, "Curbing speculation is important. Here, differential interest rates will have an important role to play, as a clear distinction will be made between a genuine property buyer and a mere speculative investor."

The ministry thinks the first-time home buyer does not indulge in speculation unlike people who buy for the sake of buying and accumulating properties. "National Housing Bank (NHB) will be entrusted with the task of working on the viability of interest rate subsidy and initiate talks with housing finance companies and banks. The banks would also be asked to fix stringent criteria for home buyers seeking home loans," he said. 

(Courtesy: Economic Times)

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