Sunday, November 7, 2010

Home Loan for only 80% of the market value of property

In the latest guideline issued by the RBI (Reserve bank of India), It has stated that the banks will be  able to provide loan for the maximum of 80% of the market value of the concerned property. Earlier it was left over to banks to decide the amount of home loan based on the property's market value. In a few certain cases the Banks were lending as much as 100% of the market value of the property as loan to facilitate the clients to the maximum level. After the issue of this particular guideline, The customer will have to spend at least 20% amount of the total market value of the property. Apart from this 20% portion the customer will have to bear the other costs such as registration fee, stamp Duty and legal fees etc. 

For example if a person named "A" purchased a property in august this year in Gurgaon. XYZ bank lend him 100% of the value of the property he planned to purchase. Suppose th market value of the property was 25 lacs. The bank could lend him this whole amount "25 Lacs" as home loan. So "A" had to bear only the overhead expenses such as Stamp duty, Registration fees, legal fees and commissions, if any. 

While, if another person named "B" plans to purchase any property with market value of Rs. 20 lacs, in NOIDA, in December 2010 (after the issue of the guideline related to the loan to property percentage limit). In this particular case "B" can only expect to get a maximum loan of 80% of the market value of the property that is 16 Lacs only. Apart from that he will have to pay the overhead costs as well.

But the clever property consultants have made their way out. Now they advice their clients to apply a loan on behalf of the reconstruction and furniture fittings etc. This way the client can get another 20% amount and he again gets a 100% value of the property's market value as loan. Again the clients will start overvaluing the proposed properties and can get a high amount of loan through this higher assessment. 

In the end, It is a good move from the bench of RBI to control the investors and banks.
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