Housing finance firms may cut interest rates, processing fees

According to officials in the housing finance companies, depending on how successful the ordinance would be in reducing the default rate, the benefits to the customers could be to the tune of 0.5 per cent to 1 per cent in terms of reduced burden (both interest rate and processing fees). At present, the average housing finance rate is between 9 per cent to 10 per cent. Further, with competition in the housing finance sector growing, the companies would be eager to pass on the benefit of reduced overhead cost to the customers.

Sources pointed out that the industry average default rate for the housing finance companies is around 2 per cent. As and when the ordinance is implemented for the sector, the default rate is expected to go down to 1 per cent and less. The ordinance would be most effective for the middle income group customers who borrow money from the finance companies for building their own house.

‘‘Threat perception would be crucial in this ordinance’’, officials in housing finance companies pointed out. Though, it would not be easy to dispose of the properties, the threat perception would reduce the default rate.Elaborating on the competition in the sector, sources said that some of the private housing finance companies are going to the extent of financing 90 per cent to 100 per cent of the cost of the property. The public sector housing finance companies, which are more conservative, usually stick to around 80 per cent financing which at times also goes to 90 per cent.