Mortgage-backed housing loans at 7% from Thursday

• Monetary Board issues Order to commercial bank and licensed specialised banks
• Applies to both permanent salaried staff in both public and private sectors 
• Fixed interest rate of 7% applies to first 5 years and balance charged with floating rate to AWPLR

The decision to cap mortgage-backed housing loan interest rates at 7.0 percent for salaried employees in both private and public sectors is now given life as the Monetary Board has instructed all licensed banks to disburse such loans from December 10. 

The budget 2021 proposed to offer housing loans at 7 percent to State sector employees. The Monetary Board of the Central Bank, during its eighth monetary policy meeting held on November 26, decided to extend the offer to the salaried private sector employees as well.

“Considering the current and expected macroeconomic developments, reduction in policy interest rates thus far during the year, the significant levels of excess liquidity prevailing in the domestic market and the need for a continued downward adjustment in lending rates to revive the economy, the Monetary Board hereby issues an Order on maximum interest rates for mortgage-backed housing loans obtained by salaried employees in the public and private sectors, from licensed commercial banks and licensed specialised banks,” the Order issued last Friday said. 

The pace, at which the execution Order to banks is issued, to give effect to decisions taken by the Monetary Board, demonstrates how quickly the members of the Board would like to see their decisions being implemented on the ground. 

The Monetary Board and its decisions taken so far this year have been the most effective and their transmission into the real economy has been the fastest in recent history. 

According to the Order, salaried employees in both the public and private sector, confirmed in service, can obtain mortgage-backed housing loans at 7.0 percent fixed for five years and the balance tenor of the loan will be charged with a floating rate linked to Average Weighted Prime Lending Rate (AWPLR), plus a maximum margin of 1.0 percent. 

“In computing the monthly loan installment for the first five years, the licensed bank shall consider the interest rate for the entire tenor of the loan as 7.0 percent per annum,” the Order said. 

“After the expiry of the fixed rate loan tenor, the licensed bank may re-price the loan every six months, based on the average AWPLR published by the Central Bank of Sri Lanka during the immediate preceding six months,” it added. 

AWPLR touched an all-time low of 5.71 percent on the week ending December 4 as the market, flushed with liquidity, is putting downward pressure on lending rates. 

The applicants of the loans under this scheme can apply for housing loans, “secured by primary mortgages over the same property and for purchases of condominium property based on an arrangement acceptable to licensed banks which must be converted into a primary mortgage over the property when construction is completed,” the Order read. 

The pace, at which the execution Order to banks is issued, to give effect to decisions taken by the Monetary Board, demonstrates how quickly the members of the Board would like to see their decisions being implemented on the ground. 

The Monetary Board and its decisions taken so far this year have been the most effective and their transmission into the real economy has been the fastest in recent history. 

According to the Order, salaried employees in both the public and private sector, confirmed in service, can obtain mortgage-backed housing loans at 7.0 percent fixed for five years and the balance tenor of the loan will be charged with a floating rate linked to Average Weighted Prime Lending Rate (AWPLR), plus a maximum margin of 1.0 percent.  “In computing the monthly loan installment for the first five years, the licensed bank shall consider the interest rate for the entire tenor of the loan as 7.0 percent per annum,” the Order said. 

“After the expiry of the fixed rate loan tenor, the licensed bank may re-price the loan every six months, based on the average AWPLR published by the Central Bank of Sri Lanka during the immediate preceding six months,” it added. 

AWPLR touched an all-time low of 5.71 percent on the week ending December 4 as the market, flushed with liquidity, is putting downward pressure on lending rates. 

The applicants of the loans under this scheme can apply for housing loans, “secured by primary mortgages over the same property and for purchases of condominium property based on an arrangement acceptable to licensed banks which must be converted into a primary mortgage over the property when construction is completed,” the Order read.