Home loan seekers still fear the worst

Borrowers are flocking to fixed-rate loans.

The last two months have seen a four-fold increase in new home loan seekers locking in future liabilities at fixed rates of interest.

"The preference is clearly changing as a greater number of people are opting for fixed-rate loans," said LIC Housing Finance Company Director and Chief Executive A K Dasgupta.

A leading housing finance company has seen a 100 per cent jump in the number of those who applied for fixed-rate loans in the first quarter of this year.

In value terms, fixed-rate loans have jumped three-fold. This was an indication that large loans were being contracted at a fixed rate, said a senior housing finance company official.

Fixed-rate loans now account for 12 per cent of ICICI Bank's incremental home loans, as opposed to 5 per cent six months ago.

ICICI Home Finance Chief Operating Officer Rajiv Saberwal said those who want loans want combi-loans, a combination of fixed- and floating-rate loans. Housing Development Finance Corporation, too, is offering combination loans.

Some of those who took large loans earlier are planning to switch from a floating rate to a fixed rate, even if it means having to pay a charge on the balance transferred.

Housing finance companies charge 1.75 per cent on the balance transferred when it comes to switching from a floating rate to a fixed rate. "We have received a number of enquiries for shifting to fixed-rate loans," said Dasgupta.

However, a number of banks do not offer fixed-rate home loans, or have now chosen not to do so fearing an asset-liability mismatch. Banks are saying no to fixed-rate home loans beyond five years.

That is because unlike housing finance companies, they do not have access to long-term funds as most rely on savings accounts and time deposits.

"It could well emerge that housing finance companies will offer a fixed rate only for short-term loans and a floating rate on long-term products," said a senior banker.

"We are rejecting applications of customers asking for fixed-rate loans beyond five years as we cannot re-price assets (fixed-rate home loans, in this case) because our borrowings are re-priced," said the head of retail assets at a new private bank.