The impact of Pune’s property prices on Home Loan amounts
Pune has become one of India’s most sought-after cities for real estate investments owing to its significant educational and IT hub growth. However, as Pune’s popularity has increased, so have its property prices. This rise in property prices directly impacts the Home Loan amounts that potential buyers need to consider. Here is how Pune’s property prices affect Home Loan amounts:
Rising property prices in Pune
Over the years, Pune has seen a steady increase in property prices. Neighbourhoods, known for their proximity to commercial centres, have experienced sharp hikes. Even in developing areas, prices rise as more infrastructure projects are introduced to improve connectivity.
The cost per square foot in these areas has grown, meaning homebuyers now need to set aside a higher budget than they would have a few years ago. Naturally, this rise in property prices increases the amount required for a Home Loan in Pune.
How do property prices influence Home Loan amounts?
When property prices rise, so does the money that homebuyers need to borrow. Lenders typically offer Home Loans based on the property’s current market value, which is assessed through professional property evaluations. If the price of a property increases, the Loan amount a buyer needs to apply for increases as well.
For example, if a property in a desirable area of Pune costs Rs. 80 lakh today but were priced at Rs. 60 lakh five years ago, a buyer would need a larger Loan to purchase the same property.
Loan-to-Value ratio
Lenders generally provide Home Loans based on a Loan-to-Value ratio, a percentage of the property’s market value. In India, the LTV ratio usually ranges between 75% and 90%. If a property is priced at Rs. 80 lakh, a buyer may receive a Home Loan covering up to 80% of that price, i.e., Rs. 64 lakh. The remaining Rs. 16 lakh should be paid as a down payment. As property prices rise, the down payment amount also increases.
Impact on EMIs
Higher property prices and more significant Loan amounts increase the Equated Monthly Instalments for Home Loans. This can pressure homebuyers financially, especially if they have other financial obligations. For instance, a higher Loan amount might lead to larger EMIs over an extended Loan tenure. Homebuyers should factor this into their financial planning to avoid being burdened with unmanageable monthly payments.
The role of interest rates
Besides property prices, interest rates also play a crucial role in determining the amount of a Home Loan in Pune. Its real estate market is subject to national and regional changes in interest rates. When interest rates are high, the overall cost of borrowing increases, leading to higher EMIs. Conversely, lower interest rates make Home Loans more affordable, even with high property prices.
Conclusion
As discussed, Pune’s rising property prices significantly influence Home Loan amounts. Hence, buyers must be careful when selecting a Home Loan plan.