MUMBAI, Apr 11: The recent rate by the Reserve
Bank is credit positive for residential mortgage-backed
securities (RMBS) market as it will offset the rising funding
cost for the lenders, preventing an increase in mortgage
rates, says a report.
Last week, the RBI had cut the repo rate by 25 basis
points to 6 percent. This cut was followed by a similar
reduction in the February policy.
“Funding costs for lenders have increased by 50 basis
points over the past year, and as a result we view a cut in
mortgage interest rates as unlikely. However, the recent RBI
cuts will help counterbalance the higher costs and help
prevent further mortgage rate rises,” Moody’s analyst
Siddharth Lal said in a note Thursday.
The agency expects mortgage interest rates to remain
elevated this year following significant increases over the
past 12 months.
“However, we do not expect the elevated interest rates
to cause delinquencies in the mortgages backed RMBS as in most
cases these higher interest rates have been passed on to
borrowers in the form of extensions to loan terms, rather than
higher monthly loan amounts,” he said.
The low household debt and high economic growth will
support borrowers ability to repay mortgage loans, he added.
The mortgages backed RMBS continues to have strong
characteristics, including borrowers with good credit
histories, low loan-to-value ratios and amortizing
principal and interest loan terms, he said.
“These strong characteristics will support the
performance of RMBS and keep delinquency rates stable
at their current low levels over the next year,” the report
said. (PTI)
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