Housing Loan: New guidelines on ‘Loan to Value (LTV) ratio’ and construction linked disbursal of loan

Loan to value ratio: Banks were not permitted to include stamp duty, registration and other documentation charges towards the cost of housing property for the purpose of effective calculation of LTV ratio. RBI has now appreciated that the amount which are excluded for arriving LTV ratio forms cost of around 15% of the house. In view of the burden on the borrowers from economically weaker sections (EWS) and Low Income Group (LIG), due to exclusion of these sizable amount for the purpose of LTV ratio, RBI has now made amendments to its earlier circular dated 03.02.2012 and vide its circular dated 06.03.2015 notified that in cases where the cost of house/dwelling units does not exceed Rs.10 lakh, banks may add stamp duty, registration fee and documentation charges to the cost of the house/dwelling unit for the purpose of LTV ratio.

Construction linked disbursal of housing loan
RBI vide its circular dated September 3, 2013 notified commercial banks to follow the guidelines stipulated under the circular “Housing Sector: Innovative Housing Loan Products – Upfront disbursal of housing loans”  for disbursal of housing loans sanctioned to individuals. In terms of the above circular, the loan disbursed should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects.

In this regard, some banks have represented to the RBI that they are not able to extend the loan to the allottees in the project developed by the Government bodies, Statutory Housing Authorities. This is due to payment schedules of project developed by Government Bodies/ Statutory Housing Authorities are not linked to the stages of construction. Such authorities normally allot house properties with such payments modes wherein allottees are asked to make either one time lump-sum payment within 1 to 3 months after allotments or time linked payment plan not linked to the stages of construction.
In view of obviating the above difficulties,  RBI vide its circular dated 06.03.2015 permitted commercial banks to disburse the home loans in case of projects sponsored by Government/Statutory Authorities even when payment sought by the borrowers are not linked to the stages of construction. However, it should be  ensured by the banks that such authorities have no past history of non-completion of projects.