Home loan rates may fall below 8% in FY 2025-26, but don't expect immediate relief - here's why

The rate cut has brought cheers to borrowers of floating-rate home loans linked to the repo rate. It is expected that banks will soon pass on the benefit of the repo rate cut to these borrowers. However, it may not happen immediately, according to experts.

Most banks usually transfer the benefit of the lower repo rate to borrowers as per their interest reset cycles. Sometimes, they delay passing on the benefit due to reasons such as higher funding costs, pressure on net interest margins, etc. For instance, several banks have yet to transmit the benefit of the previous repo rate cut.

"RBI’s decision to reduce the repo rates by 25 bps (to 6%) was expected in the backdrop of moderating inflation. However, home loan borrowers may not see much meaningful or immediate interest rate relief. Banks have not transmitted earlier MPC rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs, and a cautious lending climate," said Arun Puri, Chairman, Anarock Group.

Experts, however, say that the repo rate cut wil eventually provide relief to homebuyers.

"Lower interest rates will make home loans more affordable, enhancing the purchasing power of potential homebuyers and stimulating demand across various segments of the real estate market," said Manju Yagnik, Vice-Chairperson of Nahar Group and Senior VP, NAREDCO, Maharashtra.

If the banks do pass on the benefit of the repo rate cut, then borrowers may see home loan rates starting below the 8% mark.

The starting interest rates of private sector banks may drop to 8% as they are currently offering loans beginning at 8.5% and above.

The interest rates offered by three other Government banks - Canara Bank, Bank of Baroda, and Punjab National Bank - may drop to 7.95% due to the recent repo rate cut. They are currently offering home loans starting at 8.15%.

Similarly, the starting home loan interest rates of State Bank of India and Punjab & Sind Bank may drop from 8.25% to 8% soon. Further repo rate cuts in the year, may push these banks to offer home loans starting at less that 8%.

Credit score may also delay relief