Relief for home buyers as subsidy for middle-income group gets extension

The Credit Linked Subsidy Scheme will reduce your outstanding loan amount, and hence EMIs, right from the start of the loan tenure

For those who missed the chance of buying a house under the Credit Linked Subsidy Scheme (CLSS), there is good news. As part of the Atmanirbhar Bharat package, designed to tackle the Covid-19 crisis, the scheme has been extended till March 2021. Introduced in May 2017, the scheme had ended on March 31, 2020. According to Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.com, “Extension of this scheme is aimed at incentivising first-time homebuyers to avail of home loans.” 

Says M Barve of MB Wealth Financial Solutions: “Many who stay within a city find it difficult to pay the high rents. They are willing to live on the outskirts in their own house, for which they would pay a lower EMI than the rent they pay now. And they will come to own the house eventually.” With work-from-home (WFH) likely to continue in the future too, a shift to the outskirts seems less burdensome.  

If you fulfil the eligibility criteria and want to purchase a house, you should make the most of this subsidy. Says Raj Khosla, managing director, MyMoneyMantra.com: “There has been a huge downturn in property prices, with some falling by 50 per cent or even more. With interest rates also low, the cost of purchase is unlikely to be lower than in the next few months. Over and above all this, you are now getting an upfront interest rate subsidy, which makes the purchase decision a no-brainer.”

Pay heed to conditions: The household or applicant should not possess a pucca house in India. The applicant should not have taken any government assistance under a housing scheme previously. The owner in the EWS/LIG category must be a woman. And the maximum term on which the subsidy will be calculated is 20 years. 

To avail the benefit of CLSS, individuals must fall in one of three income categories. The first is the Economically Weaker Section (EWS) or Lower Income Group (LIG), defined as those with annual income of Rs 3-6 lakh. The second is the Middle-Income Group (MIG) I with an annual income of Rs 6-12 lakh, and the third is MIG-II with an annual income of Rs 12-18 lakh. Barve says that owing to recent pay cuts, many more people would have moved into these income brackets and become eligible for the subsidy.

Those with annual household income of Rs 6-12 lakh (categorised as MIG-I) get an interest subsidy of 4 per cent on a 20-year loan, while those in the Rs 12-18 lakh (categorised as MIG II) bracket get an interest subsidy of 3 per cent for the same tenure. The subsidy will be available only on a loan amount of Rs 9 lakh and Rs 12 lakh for MIG 1 and MIG II respectively, even if the total loan amount is higher than that. You may take a higher loan amount beyond the specified limit, but at non-subsidised rates. 

 

The annual household income includes the income earned by the husband, wife, unmarried sons and unmarried daughters. The property's location must be within the 2011 census statutory towns. Your lender will be able to tell you if your property falls within the approved area. 

Upfront benefit: One big advantage of this scheme is that the money will be disbursed upfront. Says Tarun Birani, founder & CEO, TBNG Capital Advisors: “The interest subsidy is credited to your loan account through the lender. The good part is that interest subsidy benefit will be upfront on the principal outstanding. This will reduce your effective loan amount and your EMIs.” 

Remember that the houses you can buy with CLSS are not small. MIG I can acquire or construct a house (including re-purchase) with a carpet area of up to 160 square metres. For MIG II the limit is 200 square metres. 200 square metre is around 2,152 square ft.

Where to begin? Contact financial institutions covered under the PMAY scheme, like a bank or a housing finance company. Collect the loan subsidy application form from the lender, fill it up and submit along with the other required documents. Says Birani: “Post verification, the housing loan amount will be disbursed to your bank account. Once this is done, your lender approaches the nodal agencies to start the process of injecting your bank account with the subsidy you are entitled to.” 

But all this can possibly happen only once the lockdown ends. Says Adhil Shetty, CEO BankBazaar: “It is still not feasible for customers to visit financial institutions and for these institutions themselves to collect documents and verify them due to social distancing norms and shortage of workforce. Hence, there is a need for digital alternatives that deliver loans in a contactless and paperless manner. The best way to do this would be through greater use of Aadhaar e-KYC, Video KYC, and CKYC.” 

Make a start right away. During lockdown itself, gather all documents, download the CLSS form, and keep all paperwork ready. Once the lockdown is over, you can start identifying the property and start the loan formalities. 

You can take a loan from any lending institution—a private or public-sector bank, cooperative banks, small finance banks, non-banking financial companies, etc. There is no processing fee for eligible housing loan amount based on income criteria under the scheme. However, for the additional loan amount beyond the eligible limit, lenders can charge the normal processing fee.  

Says Shetty: “This extension is very welcome as it will help middle-class families realise their dreams of purchasing a home of their own despite the current economic challenges.”