The State Bank of Pakistan (SBP) has revised its prudential regulations for housing finance, introducing an updated framework that allows banks and development finance institutions (DFIs) to finance up to 90 percent of a property’s value.
The revised regulations take effect immediately and replace several earlier circulars issued between 2019 and 2021. The State Bank has directed banks and DFIs to ensure strict compliance with the new framework.
Under the revised rules, housing finance can be provided for purchasing a house, apartment or plot, constructing a house on an already owned plot, renovating or expanding an existing house, and installing renewable energy systems in housing units. The maximum repayment period for housing finance has been set at 30 years, while renewable energy financing can have a maximum tenor of 10 years.
Loan-to-Value and Repayment Limits
The maximum loan-to-value ratio for housing finance has been set at 90:10, meaning financing can cover up to 90 percent of the value of the financed property.
The State Bank has also set a repayment capacity limit. Total monthly amortization payments, including the proposed housing finance and other consumer loans, cannot exceed 65 percent of the borrower’s net disposable income.
Credit Assessment and Documentation
Banks and DFIs will be required to obtain the latest credit information report for prospective borrowers from the State Bank’s Electronic Credit Information Bureau or a licensed private credit bureau. Banks can also use Pakistan Banks’ Association approved proxy models, where applicable, to assess informal income and repayment capacity.
Borrowers will have to provide title and ownership documents for the financed property, while banks and DFIs must provide a signed acknowledgment of the documents received.
Security and Valuation
The financed house, apartment or plot must generally be mortgaged in favor of the lending bank or DFI. For housing finance of up to Rs. 5 million, a lien on the property can be used as security if supported by a Green Property Certificate or an equivalent document issued by the relevant authority.
For financing above Rs. 10 million, banks and DFIs must obtain a property valuation from at least one valuator approved by the Pakistan Banks’ Association. For financing of up to Rs. 10 million, banks can use an internal valuation.
The revised framework also requires comprehensive insurance or Takaful coverage for financed housing units equal to the outstanding housing finance amount. Borrowers must be clearly informed about the type of coverage, premium rate and applicable charges.
