RBI eased the norms for Housing Loans

The Reserve Bank of India (RBI) on 5 March 2015 eased the norms for Housing Loans. In its notification on Housing Loans, RBI brought changes in two instruction related to Housing loans. These pertain to
• Housing Loans by Commercial Banks - Loan to Value (LTV) Ratio; and
• Housing Sector: Innovative Housing Loan Products – Upfront disbursal of housing loans

Housing Loans by Commercial Banks - Loan to Value (LTV) Ratio
With respect to Housing loans by Commercial Banks, the norms have been eased for home loans up to 10 lakh rupees by allowing banks to include stamp duty and registration and other documentation charges to the cost of a unit for the purpose of calculating LTV ratio.

This has been done as these amounts constituted around 15 percent of the cost of the house and placed a burden on the borrowers from economically weaker sections (EWS) and low income groups (LIG). This will encourage availability of affordable housing to such borrowers.

Earlier, lenders did not included stamp duty, registration and other documentation charges in the cost of housing property as it could have diluted the effectiveness of LTV ratio.

Housing Sector: Innovative Housing Loan Products – Upfront disbursal of housing loans
With respect to this, construction-linked disbursal of housing loan, RBI said that in cases of projects sponsored by Government or Statutory authorities, banks may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction.

This change was effected after some banks made representations that they are not able to extend home loans to the allottees in the projects developed by government bodies as the payment schedule prescribed by such authorities is not linked to the stages of construction.

Earlier, banks were advised to disburse housing loans closely linked to the stages of construction of the housing project/houses and upfront disbursal was not allowed in cases of incomplete/under-construction/green field housing projects.