The State Bank of Pakistan (SBP) has revised its housing finance regulations. The new framework increases the financing limit for eligible properties.
Under the revised rules, SBP Allows banks and development finance institutions (DFIs) to finance up to 90 percent of a property’s value. Borrowers will need to contribute the remaining 10 percent.
The updated regulations are effective immediately. They replace several previous circulars issued between 2019 and 2021. SBP has directed banks and DFIs to follow the revised requirements strictly.
The new framework covers several types of housing-related financing. Loans can be used to purchase houses, apartments, or plots. Financing is also available for building a house on an owned plot.
Borrowers can also use housing finance for home renovation and expansion. The framework further includes financing for renewable energy systems installed in housing units.
The maximum repayment period for standard housing finance is 30 years. However, financing for renewable energy systems can have a maximum period of 10 years.
The revised loan-to-value ratio has been set at 90:10. This means lenders can finance up to 90 percent of the financed property’s value.
SBP has also introduced a repayment capacity requirement. Total monthly loan payments cannot exceed 65 percent of the borrower’s net disposable income. This calculation includes the proposed housing loan and other consumer loans.
Banks and DFIs must obtain updated credit information before approving housing finance. They can obtain reports through SBP’s Electronic Credit Information Bureau. Licensed private credit bureaus can also provide the required information.
Banks may also use proxy models approved by the Pakistan Banks’ Association. These models can help assess informal income and repayment capacity where applicable.
Borrowers must submit valid title and ownership documents for the property. Banks and DFIs must provide signed acknowledgment of the documents they receive.
The financed property will generally need to be mortgaged in favor of the lending institution. For housing finance up to Rs. 5 million, a lien may be used as security. This option requires a Green Property Certificate or an equivalent document.
For financing above Rs. 10 million, lenders must obtain a property valuation. The valuation must come from at least one Pakistan Banks’ Association-approved valuator.
For financing up to Rs. 10 million, banks may use their internal valuation process. The revised rules therefore provide different valuation requirements based on financing amounts.
The framework also requires comprehensive insurance or Takaful coverage. The coverage must equal the outstanding amount of housing finance.
Banks and DFIs must clearly inform borrowers about the coverage details. They must also disclose premium rates and other applicable charges.
The revised framework is expected to provide clearer rules for housing finance. SBP Allows lenders to finance a larger share of property value under the new 90:10 ratio.
The move could also reduce the upfront contribution required from eligible homebuyers. However, borrowers will still need to meet income, credit, security, and documentation requirements.
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Overall, SBP Allows banks and DFIs to offer housing finance under a broader and updated regulatory framework. The changes cover property purchases, construction, renovation, expansion, and renewable energy financing.
