LTV Rules Relaxation By RBI, Home Loans Become Easier Till March 2022!

The people who have taken home loan to own their dream houses, they have great news.  With the aim of increasing the inclination of people towards availing home loan, RBI has declared the lowering of the loans value. In its official statement on Development and Regulatory Policies, the Reserve Bank of India has decided to rationalize the risk weights as well as attach them with to loan-to-value (LTV) ratios.  The changes will be extensively applicable for the new housing loans that are approved up till March 31, 2022.

In accordance to RBI, the risk weights are applied on the basis of the size of the loan and the loan-to-value ratios (LTV). It is in terms of the extant regulation for the capital charges on the credit risk of the individual housing loan. Understanding the present situation of the real estate sector, this is an encouraging move by the RBI for generating more employment and the consequent impact on other industries.

The implementation of the cheaper home loans is subjected to attract a risk weight of 35% in the case LTV is lesser than or equal to 80%. The risk weight will be 50% for LTV is in between

80-90%. The action is expected to boost the bank loans facility in the real estate sector.

Several prominent real estate companies’ owners have related statements welcoming this pleasant move by the RBI. They consider it a step in the right direction in the difficult pandemic situation, where the banks are hesitant in issuing loan due to the high risks and finally stressed buyers. Anuj Puri, Chairman, ANAROCK Property Consultants adds, it will be beneficial for banks also as be at advantage with lower provision in housing loans. It may further lead to lower interest rates for borrowers and higher savings.

How it works

The risk weight is the amount set aside by the banks for every loan it give out, it is kept to maintain solvency. The risk weight percentage was earlier decided by the size of the loan and the loan-to-value (LTV) ratio. The LTV for home loans is the percentage of the price of property financed by bank and the remaining being fulfilled by buyers. With the new regulations, the risk weightage is capped at 50% and will only depend on LTV.  It will free up the bank capital for real estate loaning and eventually provide growth opportunity.

What is loan to value (LTV) ratio?

The LTV ratio is a value that compares the amount of loan that you borrow against the total value of the property for purchase. The lenders use LTV for determining the risk on a loan and the take decision accordingly to approve or decline it.

The details of the current rates for LTV ratio, risk weights and standard assets for housing loan sanctions:

Outstanding loan	LTV ratio (%)	Risk Weight (%)	Standard Asset Provision (%)
Up to Rs.30 lakh	< 80	35	0.25
Up to Rs.30 lakh	80 and < 90	50	0.25
Above Rs.30 lakh and up to Rs.75 lakh	< 80	35	0.25
Above Rs.75 lakh	< 75	50	0.25

 

Source: https://economictimes.indiatimes.com/wealth/real-estate/rbi-relaxes-ltv-rules-to-make-home-loans-taken-till-march-2022-cheaper/articleshow/78567305.cms