Year-Ender 2024: Will Homebuyers Get Relief In Home Loan EMIs In 2025? Check Out Top Banks' Rates!

Home loan EMIs have been at a multi-year high since RBI aggressively hiked the repo rate by 250 basis points before entering into a nearly 2-years sabbatical in revising rates. Global central banks have eased their policy interest rates significantly in the second half of 2024, especially the US Federal Reserve which trimmed federal rates by 100 bps in the last three policies. However, RBI has kept the repo rate unchanged since February 2023, at a staggering 6.5%. But the year 2025 is likely to come as a relief for home loan borrowers who are looking to cheapen their EMIs, as RBI is expected to provide a host of rate cuts with the February 2025 policy predicted to be the starting point for easing in rates.

When RBI kept the repo rate unchanged for the 11th time in a row in the December 2024 bi-monthly monetary policy, the majority of real estate experts welcomed the move as a positive impact on the sector. However, they also believe a rate cut is vital for the industry.

According to Sandeep Ahuja, CEO, Atmosphere Living, the RBI's decision to maintain the repo rate is a significant boost for the real estate sector, ensuring stability in home loan interest rates and fostering confidence among both buyers and developers. For homebuyers, steady rates offer clarity and encourage more people, including those on the fence, to take the plunge into homeownership. For developers, stable borrowing costs mean better financial management and smoother project execution, helping to meet market demand efficiently.

However, Mayank Joshipura, Vice Dean, Research & Ph.D. Programme, Professor (Finance), NMIMS said, RBI has tried to improve banking system liquidity by cutting CRR by 0.5%. However, only the repo rate cut going forward will bring down the cost of borrowing and EMIs boost consumption and arrest the economic slowdown. Maybe better core inflation numbers going forward would allow the central bank to take measures that can put the economy back on a high growth trajectory.

Repo Rate - Home Loans Relation:

RBI's policy repo rate has a direct impact on lending rates offered by Indian scheduled commercial banks. Repo rate which is also called as repurchase rate, is the interest rate at which RBI lends money to banks across the country. The main reason to borrow from RBI is because of curbing short-term liquidity requirements.

What happens is that to meet their liquidity dilemma, banks can easily borrow funds from RBI by offering collateral such as treasury bills or government securities. This is a secured loan method! In this process, the repo rate becomes the interest rate aside which will be charged by the central bank to banks on the borrowed funds. Banks are required to repay the borrowed funds alongside the repo rate to RBI when they repurchase the collateral.

However, all banks have shifted to an external benchmark lending rate mechanism since September 2019, which includes the repo rate as one of the external rates. As per RBI's guidelines, all new floating rate loans and credit limits renewed with effect from October 01, 2019 have been linked to the Repo rate. The reason why RBI directed banks to opt for external benchmark rates is because it found inefficiency in the transmission of monetary policy rates to borrowers. Before October 2019, banks lending rates benchmark were based on Marginal Cost of Funds Based Lending Rate (MCLR) and Internal Benchmark Lending Rate (IBLR).

Hence, all retail and corporate loans were linked to the repo rate. That is why, any change in repo rate will have a direct impact on home loans, personal loans, auto loans, and education loan rates accordingly. If a repo rate is hiked by RBI then banks also hike home loan rates accordingly. The situation is the opposite in the case of rate cuts.

Lending rates on home loans with policy repo rate + spreads which vary from bank to bank.

How Has Repo Rate Impacted On Home Loans?

Data from RBI showed that from cumulatively policy repo rates have been hiked by 250 bps since May 2022. In response to this, the weighted average lending rates (WALRs) on fresh and outstanding rupee loans of SCBs have increased by 203 bps and 118 bps, respectively, from May 2022 to October 2024, while the weighted average domestic term deposit rate (WADTDR) on fresh and outstanding deposits of SCBs increased by 241 bps and 193 bps, respectively, during the same period.

Furthermore, as per the latest report of Knight & Frank titled Banking On Bricks, home loans top as the most preferred mode of financing across all income groups, with 79% of respondents relying on this option. However, there is a noticeable variation in how affluent homebuyers approach funding. While 83% of households earning between Rs 1 million to Rs 5 million prefer home loans, affluent buyers with household incomes above Rs 5 million show a higher inclination (19%) to utilize their savings or liquidate investments for home purchases compared to 11% in the less than Rs 5 million household income group. This suggests that wealthier individuals take a more flexible, diversified approach to financing, blending traditional home loans with personal resources to secure property.

Findings from the Knight Frank homebuyer preference survey reveal that aspirational buying is a significant driver across generations, especially in luxury and high-value segments where upgrading homes is a core motivator. Homebuyers also have specific expectations from BFSI partners, with 74% identifying competitive interest rates as a priority, followed by flexible loan terms (48%) and swift loan approval processes, said, Shishir Baijal, Chairman and Managing Director - of Knight Frank India in the report.

Home loan rates have two options floating and fixed interest rates. Among the key benefits of floating rates is that if there is a change in the benchmark rate, home loan EMIs will see similar proportionate changes as well. In the case of fixed rates, irrespective of changes in external benchmarks, your EMIs will remain the same throughout the tenure.

Could The Year 2025 Offer Relief To Home Loan Borrowers?

The majority of economists and experts are predicting a rate cut up to 75 bps and that is likely to be a key positive for home loan borrowers.

Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India said, "We expect RBI to cut rates in February 2025: cumulative 75 bps over the rate cut cycles," adding that the decision on rates has three priorities - the impact of trade protectionism, kharif arrivals and global trends that may impact imported inflation in
CPI basket.

Also, Elara Capital's note said, "We expect the MPC to cut policy repo rate by 25bps in Feb 2025E and expect a total of 75bps rate cut this easing cycle. The CRR cut following the change in stance in the previous meeting paves the way for further policy easing in the form of rate cuts. While Q3FY25 GDP growth is likely to be higher than Q2FY25 level, the impact of RBI's macro-prudential policies (to check the excesses in credit growth) and of sluggish government spending may take time to wear off."

On the other hand, after RBI's minutes of the meeting for December 2024 policy, Emkay Global believes a rate cut in February could be tricky.

Emkay said, with this being the last MPC meeting for both, the Governor and Deputy Governor, there will be two new members at the next MPC meeting in February. This new MPC will be facing substantially different policy challenges along with a diverse macro and global landscape. The policy trade-offs are getting acute due to: i) the entrenched state of India's stagflation, ii) tricky timings and small window of conventional rate cuts as global dynamics turn more fluid, iii) mounting FX pressure and increasing cost of FX intervention. Thus, the window for a conventional rate cut is narrowing. A February rate cut call remains tricky.

Best Bank Home Loan Rates 2024:

Bank Home Loan Rates 2024
HDFC Bank	8.75% to 9.65%
SBI	8.50% to 9.65%
ICICI Bank	Starts From 8.75%
Bank Of Baroda	8.40% to 10.60%
Punjab National Bank	8.40% to 10.10%
Kotak Mahindra Bank	Starts From 8.75%
Axis Bank	8.75% to 9.65%