Home loan rate hike unlikely to dent housing demand, say experts

In a surprising move amid a falling interest rate environment, the State Bank of India (SBI) has revised its home loan rates upward, setting the new range between 7.50% and 8.70%.

The upper band has increased by 25 basis points from the earlier cap of 8.45%, while the lower end of 7.50% remains unchanged.

While this could raise concerns about affordability, experts believe the impact on housing demand will be limited—particularly for the mass market and first-time homebuyers.

Mass-market segment remains protected

According to Binitha Dalal, Founder & Managing Partner, Mt. K Kapital, the hike is largely symbolic and targeted.

“SBI has only revised the upper end of its home loan range, from 8.45% to 8.70%, while the lower rate remains at 7.5%. Borrowers with strong credit profiles continue to access loans at the lower rate, which covers the majority of lending. As a result, housing demand remains stable,” she explained.

Dalal further emphasized that first-time homebuyers will remain unaffected, as loans up to Rs 75 lakh continue to be competitively priced in the 7.5%–7.75% range. She described the revision as a tactical move to provide flexibility for higher-ticket and specialized loan products without disrupting demand in the broader market.

Affordable and mid-range housing more sensitive

Offering a complementary perspective, Anuj Puri, Chairman of ANAROCK Group, highlighted that the rate adjustment could weigh more heavily on the affordable and mid-range housing segments, which are most sensitive to borrowing costs.

“Home loan interest rates play a significant role in directing demand in the affordable and mid-range housing sectors, which are especially cost sensitive,” Puri noted.

While luxury housing is also affected, it is relatively less dependent on minor borrowing cost variations.

Impact on buyer behavior

Puri added that the current marginal hike is unlikely to cause a major shift toward budget housing. Instead, higher rates may lead to delayed purchase decisions rather than downgraded preferences.

“The demand for larger homes is based on baseline fundamentals like comfort, space for the family to grow, improved work-from-home possibilities, and better resale value. Buyers looking for these will not compromise merely because of a small rate hike. Instead, some may choose to wait longer to accumulate a larger down payment,” he explained.

Outlook for the housing market

Overall, experts agree that SBI’s move is unlikely to derail housing demand in the near term. By keeping entry-level loans competitive, the bank has insulated the bulk of borrowers. However, if borrowing costs rise more substantially, it could eventually slow demand in cost-sensitive segments.

For now, with structural drivers like urbanization, changing lifestyle needs, and increasing household incomes, India’s housing sector looks set to maintain momentum—even amid shifting interest rate dynamics.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)