Interest rate on home loans up to Rs 35 lakh in metro cities and up to Rs 25 lakh in other places may soon cost less as the Reserve Bank of India yesterday increased the limit of housing loans for qualifying under priority sector lending (PSL). "In order to bring greater convergence of the priority sector lending guidelines for housing loans with the affordable housing scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower income groups, it has been decided to revise the housing loan limits for PSL eligibility from existing Rs 28 lakh to Rs 35 lakh in metropolitan centres (with population of ten lakh and above), and from existing Rs 20 lakh to Rs 25 lakh in other centres," the central bank said in a release.

However, the overall cost of the house in the metropolitan centre and at other centres should not exceed Rs 45 lakh and Rs 30 lakh, respectively to qualify for this benefit, RBI further said.

Although the overall home loan rates may become costlier after RBI's 25 basis point hike in repo rate yesterday, loans up to above-mentioned limit may cost comparatively less as banks will lend more to these sectors because of lower rate of default in this segment, the Times of India said in a report. 

Banks are required to lend around 40 per cent or their total loans to priority sectors which include micro enterprises, agriculture sector, borrowers from weaker section and so on. However, default rates are higher in these segment, so banks may be tempted to lend more to those priority sectors where default rate is less.

The default rate in housing loans in the range of Rs 10 lakh to Rs 35 lakh is comparatively low. Therefore, bankers say the RBI’s decision would prompt lenders to lower rates in the small-ticket home loan segment to increase market share, the TOI report said.

The decision to increase the limit would be a big boost for first-time home buyers who are looking to purchase properties in the affordable segment, the TOI report quoted Anuj Puri, chairman, Anarock Property Consultants as saying. Besides getting subsidy benefits of Rs 2.68 lakh from the central government under schemes like Pradhan Mantri Awas Yojna, owning a house in the metros will soon become a reality for many, he further added.