Banks debate including stamp duty and registry charges in home loans

Aspiring homeowners may soon find themselves eligible for more substantial loans, as banks have proposed incorporating stamp duty and registration charges into the project cost. This proposal is currently under consideration by the Reserve Bank of India (RBI), according to insiders familiar with the matter. Lenders put forth this proposition to the RBI after holding internal discussions during a meeting last month. At present, these charges are not factored into the home loan amount.

Should the RBI approve the proposal, for a project with a cost of Rs 1 crore, which includes Rs 20 lakh for stamp duty and registration charges, a borrower could be eligible for a loan of Rs 75 lakh, as opposed to the existing loan-to-value (LTV) ratios prescribed by the RBI, which would permit a loan of Rs 60 lakh. The LTV ratio represents the percentage of the property value that a lender can lend to a property buyer.

Presently, home loan LTV ratios range from 75 percent to 90 percent of the property value, but if the loan amount exceeds Rs 75 lakh, the LTV ratio cannot surpass 75 percent. Nearly a decade ago, the central bank directed lenders not to include stamp duty or registration charges in the total property value to preserve the effectiveness of loan-to-value norms. Such charges inflate the realizable property value since stamp duty, registration, and other documentation fees are not realizable, ultimately leading to diluted margins, as per an RBI circular issued in February 2012.

In 2015, the RBI allowed banks to include stamp duty and registration charges in the cost of a unit for home loans up to Rs 10 lakh to promote affordable housing for such borrowers. According to the latest Financial Stability Report from the Reserve Bank, the share of residential housing loans in total advances increased from 8.6 percent in March 2012 to 14.2 percent in March 2023. The report also stated that the total exposure of the banking system to real estate stood at 16.5 percent of total loans in March 2023, with loan defaults remaining at less than 2 percent. This is attributed to the secured nature of these loans and loan-to-value ratio regulations.

In conclusion, the potential inclusion of stamp duty and registration charges in home loan amounts, pending RBI approval, offers a promising opportunity for homebuyers to access larger loans. This development aligns with the evolving dynamics of the housing market and could facilitate increased home ownership without compromising the security of collateral-backed loans.

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Banks debate including stamp duty and registry charges in home loans

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