The government has decided in principle to allow commercial banks to take over mortgaged houses in cases of loan default after a cumulative notice period of 90 days, as part of efforts to promote lending to Pakistan’s housing sector.
The proposal is part of amendments to the Financial Institutions (Recovery of Finances) Ordinance, 2001, which are currently being reviewed by the National Assembly’s Standing Committee on Finance and Revenue.
Under the proposed framework, banks would be allowed to issue three separate notices of 30 days each to borrowers who fail to pay mortgage dues. If the borrower remains in default even after the final notice, the financial institution may proceed with the sale of the housing unit, provided all legal notice requirements have been fulfilled.
The issue came under discussion at a meeting of the Standing Committee on Finance held in Islamabad on Thursday under the chairmanship of Syed Naveed Qamar. During the session, committee members raised serious concerns over provisions they said could grant excessive powers to banks in the foreclosure process.
In its statement after the meeting, the committee said lawmakers had expressed reservations about clauses that may tilt the balance too far in favour of financial institutions. Members stressed that while stronger recovery laws are needed to expand mortgage financing and protect lenders, borrowers must also be protected through due process and legal safeguards.
Following detailed deliberations, the committee deferred the bill to its next meeting and directed the Ministry of Housing and Works to circulate a revised draft among members before finalisation.
Qamar said affordable housing finance must genuinely serve deserving low-income families through transparent, accountable, and inclusive mechanisms. He also emphasized the need for effective foreclosure and recovery laws to strengthen Pakistan’s underdeveloped mortgage finance sector and improve banks’ confidence in extending long-term housing loans.
During the meeting, federal secretaries from the finance, housing and works, and law and justice ministries briefed lawmakers on the Prime Minister Apna Ghar Programme, its implementation framework, and proposed reforms related to housing finance and foreclosure laws.
Housing Secretary Captain (retd) Mehmood Ahmad told the committee that the Prime Minister Apna Ghar Programme is a subsidized housing finance scheme aimed at enabling low and middle-income families to own homes while also stimulating economic activity and supporting the construction sector.
Approved in August 2025 and revised in March 2026, the scheme offers financing of up to Rs. 10 million for first-time homeowners at a fixed markup rate of 5 percent for up to 20 years, based on a 90:10 financing ratio.
As of April 30, 2026, the programme had received 25,304 applications. Of these, 8,990 applications worth Rs. 37.154 billion had been approved, while Rs. 5.071 billion had been disbursed to 1,845 beneficiaries.
Officials informed the committee that Pakistan’s housing finance sector remains severely underdeveloped, with mortgage financing accounting for only 0.3 percent of GDP and 0.56 percent of total private sector credit.
The government has set a target of financing 500,000 housing units over the next four years, requiring an estimated Rs. 3.2 trillion in funding.
Responding to questions from lawmakers, Finance Secretary Imdadullah Bosal acknowledged that the government currently does not have fiscal space of Rs. 3.2 trillion. He said the required funding would have to be arranged through fiscal adjustments, given the prime minister’s priority focus on the programme. He added that subsidy schemes may need to be reviewed and the Public Sector Development Programme could face further cuts if necessary.
Government officials maintained that reforms in foreclosure and recovery laws are essential to reduce risks for banks, improve investor confidence, and support sustainable growth in the mortgage finance market.
However, the committee observed that Pakistan’s housing finance ecosystem remains too weak to support such ambitious targets without broader structural reforms, stronger recovery mechanisms, and a more supportive regulatory environment.
Lawmakers also expressed concern over the limited reach of housing finance for low-income and marginalized communities, particularly in rural and underserved areas. The panel questioned whether banks and financial institutions currently have the institutional capacity to finance 500,000 housing units within four years.
The committee recommended that the government and the State Bank of Pakistan introduce simpler financing procedures, more flexible eligibility criteria, and stronger subsidy support for low-income and informal-sector households to improve access to housing finance.
The law secretary told the panel that the proposed amendments to the Financial Institutions (Recovery of Finance) Amendment Act, 2026 include several structural changes based on stakeholder feedback. These include the insertion of a new Section 15A specifically for housing finance instead of applying the provisions broadly to all mortgage deeds.
He said the revised draft extends the notice period in mortgage default cases to three notices of 30 days each, giving borrowers a total of 90 days before any further action can be taken. He added that a new provision would also allow financial institutions, at any stage before the sale of a mortgaged property, to reschedule, restructure, or settle outstanding mortgage liabilities.
According to the law ministry, the proposed amendments are intended to ensure timely recovery, fair treatment of mortgagors, and transparent enforcement of secured interests while improving efficiency in the recovery process.
