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The hike in home loans rates in India is having a slowing down effect on the property boom. In the last few years the interest rates on home loans has increased by about 3 percent.

Recently the premier ICICI bank hiked its interest rates for new customers by 50 basis points (0.5 percent). This meant that the current floating rate stands at 11 percent. One and half years back it was 7.5 percent.

For fixed rate loans currently it stands at 13 percent while it was almost 11.50 percent earlier.

Coupled with the huge increase in property prices the effect of this is a slowdown in the residential market. This is seriously affecting the middle class buyer and his dreams of owning a home.

Shivkumar Mani, Head Marketing, Dewan Housing Finance Limited which is a reputable home finance company expresses his opinion. “Higher interest rates in home loans have certainly impacted India’s property scene as it means higher EMI and therefore lower disposable incomes after servicing the loan. Currently the home loan buying process has slowed down as people are contemplating and some may even decide to wait before purchasing a new house.” He further states that those who had saved to buy their dream home would now be forced to purchase a smaller home in a cheaper locality.

Many people are considering prepaying their loans. This is after they do the math and realize that their funds parked in a bank account offer a higher rate of returns.

Moreover a buyer now has not only reduced buying capacity but also has a reduced eligibility to apply for home loans.

A number of bankers believe that thought the housing market in financial terms has gone up by over 30 percent; the actual physical expansion has only been 3 percent. The supply has just not kept up with the increasing demand which has been a result of the booming economy and the rising purchasing power of the consumer. This was of course until now. The hike in interest rates has already slowed down the market and time will reveal how far down it will go.

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