The Reserve Bank of India’s latest move to cut the repo rate by 25 basis points — from 5.50% to 5.25% — has raised expectations that home loan interest rates will begin to decline, potentially setting off a revival across the housing and real estate sectors. Although the RBI has not instructed banks to reduce lending rates, the rate cut sends a strong signal to lenders to lower borrowing costs, especially for long-term loans like home financing.
The transmission will vary depending on how a borrower’s loan is benchmarked. Loans linked to the external benchmark lending rate (EBLR) — which directly fluctuates with the repo rate — are expected to see the quickest reduction. Borrowers whose loans are tied to the marginal cost of funds-based lending rate (MCLR) may see a slower impact, because banks adjust MCLR only during scheduled reset cycles. A 25-basis-point cut in the repo rate may translate into a smaller cut in MCLR, depending on the bank’s funding costs and pricing structure.
Industry analysts believe that cheaper credit will immediately lift sentiment among both buyers and developers. Jeet Mukesh Chandan, Group Managing Director at BizDateUp, said the rate cut is likely to increase confidence across the ecosystem — encouraging homebuyers, stimulating investor activity, and supporting valuations and transaction volumes.
For borrowers, the benefits will unfold differently. Those with repo-linked floating-rate loans are expected to see relief soon, while those under MCLR-linked loans may have to wait until their scheduled reset dates. Santosh Agarwal, CEO of Paisabazaar, noted that home loan borrowers often face two choices when rates fall: reduce their EMI or maintain the EMI and shorten the repayment tenure to reduce total interest outgo. With banks expected to gradually pass on the new rate environment, analysts predict stronger credit demand, better liquidity and a more supportive lending cycle over the coming months.
At present, most banks continue to offer home loans based on the earlier repo rate of 5.5%, but downward revisions are expected soon. Current benchmarks show SBI charging around 7.50%–8.70%, HDFC Bank at 7.90%–13.20%, ICICI Bank at 8.75%–9.80%, Axis Bank at 8.35%–9.10% for high-credit borrowers and 8.60%–9.35% for the rest, while Canara Bank ranges between 7.40% and 10.25%.
Although banks may take some time to adjust their lending rates, the direction of policy is unmistakably softer. With the RBI signalling a more accommodating phase for interest rates, home loans are poised to become more affordable — setting the stage for greater home-buying activity and momentum in the real estate market in the months ahead.
