LTV Ratio in Home Loans Must Not Exceed 80%: RBI

The Reserve Bank of India, on Friday 3rd February instructed all banks not to overstate the value of houses for financing housing loans. It has made clear to all banks that the LTV (Loan To Value) Ratio in respect of housing loans must not exceed 80 percent. That is, a home loan borrower can be sanctioned a loan up to Rs.8 lakh against the property of Rs.10 lakh.

RBI has found banks, adopting different practices in deciding the value of the house property. It has found that some banks include stamp duty, registration charges and other documentation charges in the cost of housing property, thereby overstating the value of the property. Thus, RBI directed all banks not to include these charges in the cost of housing finance so that, the effectiveness of the LTV norms mandated by RBI was not diluted.

By this notification, RBI states that an overstated property price would not fetch higher loans which in turn will not violate the original LTV ratio.

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