Retail Housing Loan- LTV rules relaxation by RBI || LTV rules relaxation by RBI and how does it work?

What is the LTV rules relaxation by RBI?

This is probably the best news for the people who want to avail of home loans to go for their own dream houses. The LTV rules relaxation by RBI and amendments are done to increase the participation towards buying the new homes and eventually loans as well. This is one move of RBI to lower the rates for people availing a home loan, with this RBI has declared the lowering of the loan's value.

After the meeting, Development and Regulatory Policies in its official statement said that now the Reserve Bank of India has decided to rationalize the risk weights and attach them to LTV ratios.

What will the new rules offer?

The new LTV rules relaxation by RBI will link the total borrowing amount i.e. loan to the LTV (Loan to value), this is said to be advantageous for both buyers and lenders

LTV rules relaxation by RBI is much done to make home loans cheaper. The RBI Statement towards the Development and Regulatory Policies will rationalize the risk weights and link them to LTV ratios only for the housing loans sanctioned up to March 2022.

Generally, for every loan that is sanctioned by the banks, they must set aside a percentage of the loan to maintain solvency. And that percentage is called risk weightage. It goes like the riskier the lending, the higher will be the weightage.

The percentage to maintain solvency is normally segregated based on two major factors.

• First, is the size of the loan demanded.
• Second, is the LTV (Loan to value and after the LTV rules relaxation by RBI, now this will be done based on LTV completely, which is supposed to free up banks capital and it will also spike up the growth of the real estate industry).

now this will be done based on LTV completely, which is supposed to free up banks capital and it will also spike up the growth of the real estate industry).

 

This move is said to be very advantageous for the borrowers especially for large ticket borrowers and will benefit the Banks as lowering the rates will make the product and it’s pricing more lucrative and it will make the product more attractive to many people with a dream to have a dream house. This lower rate as per the research will make housing affordable for buyers as well and from the bank's point of view this move of RBI will increase the demand as the slashed rate will make it more enticing.

What is LTV?

An (LTV) ratio or loan-to-value ratio makes the comparison between the amount of loan you will borrow, in comparison to the total value of the property you are opting to buy. A majority of Lenders also use LTVs to figure out how risky a loan is and if it should be sanctioned or they should not consider it

LTV in simple terms are that, once you apply for a home loan, LTV is the amount the bank will sanction, and the other part is financed by the buyer only.

Earlier for a loan amount of up to Rs 30 lakhs with an LTV ratio of less than 80%, the risk weight was 35%. According to the norms, if the LTV is between 80-90%, the risk weight will be 50%. Apart from this, this standard asset provision for individual home loans is kept at 0.25%.

Similarly, for loans above Rs 75 lakh, with an LTV ratio of above 75%, the risk weight is 50%.