Teaser mortgage loans withdrawn from India property market

  • 13 years ago
  • Uncategorized

Mortgage loans that offered low initial repayments to encourage first time buyers to buy property in India have been withdrawn by the country’s largest commercial bank amid fears that the loans will result in a repeat of the US ‘sub-prime’ crisis.

The State Bank of India (SBI) has been forced to withdraw these so-called ‘teaser’ mortgage loans after pressure from the Reserve Bank of India (RBI).  The loans will be scrapped from May 2011.

‘Teaser’ mortgages popular with borrowers

The Financial Times reports that the home loans accounted for as much as half of new mortgage business and were popular with first time buyers.  The loans offered low repayment rates over the first one to three years before payments then rose.

The newspaper reports that ‘the tiered pricing is often not well understood by borrowers, who are unprepared for higher repayments as the loan matures. They also worry about rising defaults at a time when the RBI is raising interest rates to rein in the highest inflation of any large Asian economy.’

Loans had encouraged first time purchasers to buy property in India

In its 2011 Economic Survey, the finance ministry praised the State Bank of India for its home loans as they had encouraged first-time buyers into the market.  The loans were extended to about 300,000 customers, and accounted for about Rs100bn (£1.36 billion). The mortgages held interest constant for the first year of repayment and about 90 per cent of the home loan borrowers were first-time buyers.

Pratip Chaudhuri, chairman of SBI, said: “We are changing the interest rate structure which will be compliant with RBI’s guidelines on tiered loans but will not result in a higher interest pay-out for the borrower.”

India’s mortgage market is growing fast as property prices in the country strengthen.  A growing middle class in India has resulted in more and more people buying property in India and developers have marketed apartment complexes aggressively to first time buyer.

Meanwhile the top 5 places where overseas buyers research property for sale in India at overseas property portal are Delhi , Goa , Mumbai and Bangalore 

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