The State Bank of Pakistan (SBP) has revised its Prudential Regulations for Housing Finance, introducing a new framework that allows banks and Development Finance Institutions (DFIs) to finance up to 90% of a property’s value.
The revised regulations have taken effect immediately and replace several housing-finance circulars issued by the central bank between 2019 and 2021. Banks and DFIs have been directed to ensure compliance with the updated requirements.
Housing Finance Expanded to Multiple Purposes
Under the revised framework, housing finance can be obtained for a range of residential needs, including:
- Purchasing a house or apartment
- Purchasing a plot for residential construction
- Constructing a house on an already owned plot
- Renovating or extending an existing house
- Installing renewable-energy systems in residential properties
The maximum repayment period for standard housing finance has been set at 30 years, while financing for renewable-energy solutions can have a maximum tenor of 10 years.
Banks Can Finance Up to 90% of Property Value
One of the key changes is the revised 90:10 loan-to-value (LTV) ratio.
Under the new framework, eligible borrowers may receive financing of up to 90% of the value of the financed property, subject to the applicable regulatory and lending requirements.
The change could reduce the upfront equity requirement for qualifying homebuyers, although the actual financing available to an individual borrower will depend on factors including income, creditworthiness, property valuation, and the lender’s assessment.
Repayment Capacity Capped at 65% of Income
SBP has also introduced a limit on borrowers’ repayment obligations.
The total monthly amortization payments, including the proposed housing loan and other consumer-finance obligations, cannot exceed 65% of the borrower’s net disposable income.
Banks and DFIs will also be required to obtain the latest credit information of prospective borrowers through the SBP Electronic Credit Information Bureau (eCIB) or a licensed private credit bureau.
Where applicable, lenders may use income-assessment models approved by the Pakistan Banks’ Association (PBA) to evaluate borrowers earning through informal sources.
Property Documents and Security Requirements
Borrowers will be required to submit relevant title and ownership documents for the property being financed. Banks and DFIs must provide borrowers with a signed acknowledgment confirming receipt of these documents.
Generally, the financed house, apartment, or plot must be mortgaged in favor of the lending institution as security for the housing finance.
For housing finance of up to Rs. 5 million, lenders may accept a lien on the property where it is supported by a Green Property Certificate or an equivalent document issued by the relevant authority.
Property Valuation Rules Updated
The revised regulations also establish different valuation requirements based on the size of the financing facility.
For housing finance exceeding 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 may use an internal valuation, subject to the applicable requirements under the revised framework.
Insurance and Takaful Coverage Required
The updated regulations also require financed residential properties to have comprehensive insurance or Takaful coverage equivalent to the outstanding housing-finance amount.
Lenders must clearly inform borrowers about the applicable coverage, premium rates, and other related charges.
Revised Framework Aims to Improve Housing Finance Access
The updated SBP framework provides a broader structure for housing finance while establishing requirements related to affordability, property security, valuation, credit assessment, and insurance.
The increase in the maximum loan-to-value ratio to 90% could make home financing more accessible for eligible borrowers by reducing the amount they need to contribute upfront. However, applicants will still need to meet the lending institution’s eligibility criteria and demonstrate sufficient repayment capacity.
For prospective homebuyers, understanding the total cost of financing, applicable charges, repayment obligations, property valuation, and lender-specific terms will remain important before taking a housing loan under the revised framework.
