Home buying is becoming attainable for more Nepalis as financial institutions are eager to expand the portion of home loans in their lending portfolio.

The total loans floated by banks and financial institutions as residential home loans have increased by 26 per cent in last one year following drop in the interest rate charged for the home loans. The commercial banks, development banks and finance companies have forwarded loans worth Rs 59.3 billion by mid-April, according to the central bank data.

The amount of such home loans provided by these financial institutions stood at Rs 46.9 billion in mid-April, 2012.

However, many prospective buyers are still hesitant about opting for home loans from the fear of possible increase in interest rate later on.

“We have been window shopping for home loans in different banks since past few months for our first house but we are not yet sure whether to opt for fixed interest or floating,” said a young couple working in a multinational company and were looking for apartments in last month’s real estate exhibition. A month later they have decided to go for fixed interest rate plan for first five years, albeit it is half percentage point higher than the banks’ running home loan rate.

Following the short cyclical nature of interest rate in the domestic financial sector, borrowers have hard time to decide on whether to go on paying fixed interest rate in case the interest rates go down in future.

On the other hand, in case of liquidity crunch the financial institututions might increase the interest rate to unsustainably high level, if they chose floating interest rate.

“Now a days, banks are providing different kinds of loan plans especially designed for residential home loans but consumers are still hesitant to approach banks,” said vice president of Nepal Bankers’ Association Upendra Poudel.

“The interest rate for home loan at present is not more than 11 per cent on an average, which is less than the rate for commercial loans,” he added.

Banks like Laxmi Bank, Everest Bank, NIC Bank, NMB Bank, Himalayan Bank have all offered fixed interest home loans for first few years.

“Home loans are desirable portfolio for banks, if the borrower can substantiate steady income source to the banks as well,” pointed out Poudel who is also chief executive of NMB Bank.

The recent flush in home loans have also healed ailing housing sector. “The prevailing rate of interest

and different loan products have definitely helped in putting some fresh life in the housing sector,” pointed out general secretary of Nepal House and Land Development Association (NLHDA) Min Man Shrestha.

The sales of new apartments units have picked up a little bit due to availability of home loans, he said, adding that almost half of the prospective home buyers have however expressed that they are hesitant about taking loans due to uncertainty regarding the interest rate in future.

At present, Nepal Rastra Bank allows banks to float up to Rs 10 million as residential home loans and is calculated under real estate loan. The real estate loan that had been slumping since the central bank capped its ceiling in December 2009, has declined by seven per cent during last one year. In mid-April 2012, amount of loans floated to real estate stood at Rs 95.4 which by this mid-April dropped down to Rs 88.3 billion.

source: the himalayan times,9 June 2013