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Rising interest rate to bring down homebuyers’ affordability

Monthly Archives: June 2022

Rising interest rate to bring down homebuyers’ affordability

The rising interest rates will bring down loan affordability of homebuyers, Knight Frank warned on Monday.

A sharp rise in inflation has forced the central bank to raise interest rates and suck out excess liquidity in the market, but it could expose the home segment to a significant headwind, the realty advisory firm said.

The 50-bps hike in the REPO rate in June Monetary Policy Committee (MPC) announcement came on the back of a 40-bps increase in May. Further, the significant 1 percentage point increase in the FY23 consumer inflation estimate to 6.7%, which was higher than RBI’s upper tolerance band of 6%, and it would mean further rate hikes, it said in a statement. Home loan rates are still approximately 150 bps below those prevailing in 2019 and a reversion to those levels will result in an 11.73% increase in the EMI load for the homebuyer, which means a 3.38% decrease in affordability, as per Knight Frank’s Affordability Index.