Karachi: The State Bank of Pakistan (SBP) has revised its Prudential Regulations for Housing Finance, introducing a new framework aimed at improving access to housing finance while strengthening lending, documentation, and risk-management requirements for banks and Development Finance Institutions (DFIs).
The revised regulations have taken effect immediately and replace several circulars issued by the central bank between 2019 and 2021. Banks and DFIs have been instructed to comply with the updated requirements.
Housing Finance Expanded to Multiple Purposes
Under the revised framework, housing finance can be obtained for several residential purposes, including:
- Purchasing a house or apartment
- Purchasing a plot for residential construction
- Building a house on an owned plot
- Extending or expanding an existing house
- Renovating a residential property
- Installing renewable-energy solutions in housing units
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
A key change in the revised regulations is the 90:10 loan-to-value (LTV) ratio.
Subject to applicable eligibility and regulatory requirements, banks and DFIs can provide financing of up to 90% of the value of the financed property.
The framework also introduces an affordability limit. A borrower’s total monthly amortisation payments, including the proposed housing loan and other outstanding consumer-finance obligations, cannot exceed 65% of their net disposable income.
For individuals earning through informal sources, banks and DFIs have been directed to use informal-income estimation models circulated by the Pakistan Banks’ Association (PBA) when assessing repayment capacity.
New Rules for Smaller Housing Loans
The revised framework also includes provisions for smaller housing-finance facilities.
For financing of up to Rs. 5 million, banks and DFIs may provide loans against a lien on the property. This can include a Green Property Certificate issued by the Punjab Land Records Authority or an equivalent certificate from the relevant provincial authority.
For financing exceeding Rs. 10 million, property valuation by a PBA-panel valuator is mandatory.
These requirements establish different security and valuation procedures depending on the size of the housing-finance facility.
Insurance and Digital Verification Requirements
Banks and DFIs will also be required to obtain comprehensive insurance or Takaful coverage for financed residential properties.
The revised framework further requires lenders to use standardised financing documents circulated by the PBA. Digital signatures on these documents must be verified through one-time passwords (OTPs) or another approved form of two-factor authentication.
Revised Framework Strengthens Loan Classification
The SBP has also updated the framework for classifying housing-finance assets.
The revised regulations establish four categories:
- OAEM
- Substandard
- Doubtful
- Loss
The classifications are based on overdue periods of 90 days, 180 days, one year, and two years, respectively.
Provisioning requirements will be determined using IFRS-9 Expected Credit Loss or Forced Sale Value (FSV)-based calculations, whichever results in the higher requirement.
The benefit associated with Forced Sale Value will cease five years after the date of classification.
Rules for Rescheduling and Restructuring
The updated regulations also place limits on the rescheduling and restructuring of housing finance.
A housing-finance facility can generally be rescheduled or restructured only once within a two-year period. Any extension of the financing tenure is capped at five years, while the overall repayment period cannot exceed the maximum 30-year limit.
These measures are intended to provide flexibility for borrowers facing repayment difficulties while maintaining lending discipline within the banking system.
Simplified Housing Loan Applications
Another significant change is the introduction of simplified and standardised housing-finance application forms.
The forms will cater to:
- Formal salaried individuals
- Formal businesses
- Informal-income applicants
Banks and DFIs will be required to make these forms available in both physical and digital formats, as well as in Urdu and English.
Potential Impact on Housing Finance in Pakistan
The revised SBP framework provides borrowers with a broader range of eligible housing-finance purposes while potentially reducing the upfront equity requirement through the 90% LTV limit.
At the same time, the updated regulations introduce clearer requirements for income assessment, property valuation, insurance, documentation, loan classification, and restructuring.
For prospective homebuyers, the changes could provide greater flexibility in accessing housing finance. However, actual financing will continue to depend on the borrower’s income, credit history, repayment capacity, property valuation, and the lending institution’s applicable terms and eligibility requirements.
