In tandem, HSBC increased the home loan rate by 175 basis points to 11.10 per cent till March 2007. It informed Nair that given the home loan rate hike, he could either increase his EMI by Rs 2,000 to maintain his loan tenure or live paying loans for a couple of extra years. Like most borrowers, Nair has not checked the latest on his home loan rate.

Such monetary tightening has had a larger impact on the housing loan market too. The young urban Indian — who was in the last 10 years fulfilling the dreams of his father who never owned a house — suddenly found it far too difficult to take loans at expensive rates. As a consequence, the growth in loans extended by banks to housing more than halved to 12 per cent in 2007-08 compared to a 25 per cent growth in the previous year.

In 2007-08, housing loans by banks were about Rs 26, 930 crore.

Nair went into an overdrive and sold much of his stock options and other market investments to prepay a chunk of his home loan. Today, his outstanding has shrunk to Rs 9.35 lakh, but on the flip side, he says, their family does not have a back up plan even if Rs 50,000 was needed in an emergency. During his two-year loan tenure, the Nairs had a child — seven months now — and are learning to live with higher food and grocery prices.

Inflation has hit double digit rates and is over 11 per cent now. “The rise in prices over the last two years has increased our household budget by almost 25 per cent,” says Nair. He has sold off his car and thankfully, the company has built in a component in his total costs and given him a car. “I would love to save on my fuel costs, but where is the public transport in Ghaziabad?” he says.

... contd.