With Reserve Bank of India trying to tighten credit flow to the housing sector, some state-owned banks are debating raising rates on loans to those buying a second house. If the move  termed as "informal discussions" by a finance ministry official goes through, interest rate on the loan for your first apartment could be lower than that for your next one.

Sources said the issue has been discussed by the boards of some public sector banks after the finance ministry asked them to review their exposure to various sectors to ensure that real estate did not corner credit flow, and in the process affected productive segments like manufacturing, agriculture and infrastructure.

In fact, some of the banks came back to the finance ministry with the suggestion. But the house is divided. A section in the government and the RBI feels that the suggestion would be difficult to administer and will unnecessarily raise hassles for borrowers. "Borrowers may have to submit affidavits to certify that the loan is for the first house and for self-occupation. There is also a possibility that some people buy a second house for their children's use and not necessarily for speculation," a source said. Home, sweet home Despite rate hike, home loan demand remains strong

Fears of the real estate sector being hit by an increase in interest rate on home loans have proved unfounded.

Latest data from the quarterly results of State Bank of India, ICICI Bank and HDFC shows that driven by a strong demand from end-users, the housing loan segment witnessed a strong growth during July-September 2006, when interest rates on variable home loans went up one percentage point from 8.5% to 9.5%.

Rise in interest rates had no effect on demand for home loans, particularly from the end users, says HDFC executive director Renu Karnad. "The demand for residential units continued to be strong as more and more options were available (to buyers) due of the boom in the construction industry," she adds.