The State Bank of Pakistan (SBP) has revised its Prudential Regulations for Housing Finance, introducing changes aimed at improving access to home financing in Pakistan and simplifying the application process for eligible borrowers.
The updated regulations, which take effect immediately, apply to banks and Development Finance Institutions (DFIs). They also replace several earlier circulars issued between 2019 and 2021.
Wider Range of Housing Financing Options
Under the revised framework, housing finance can be used for a broader range of residential needs. Eligible purposes include:
- Purchasing a house or apartment
- Constructing a home on an owned plot
- Purchasing land for residential construction
- Extending an existing property
- Renovating a residential property
- Installing renewable-energy solutions in homes
This broader scope gives borrowers more flexibility in using housing finance for different stages of homeownership and residential improvement.
Home Loans Can Cover Up to 90% of Property Value
One of the key changes is the revised loan-to-value (LTV) ratio of 90:10. Subject to applicable eligibility and regulatory requirements, banks and DFIs may finance up to 90% of a property’s value, while the borrower contributes the remaining portion.
The maximum repayment period for housing finance has also been set at 30 years. Financing specifically obtained for renewable-energy solutions can have a maximum tenor of 10 years.
Housing Payments Limited to 65% of Disposable Income
The revised rules also establish an affordability requirement for borrowers.
A person’s proposed monthly housing-finance payment, combined with their existing consumer-finance obligations, cannot exceed 65% of their net disposable income.
For applicants earning income from informal sources, banks and DFIs will use income-estimation models circulated by the Pakistan Banks’ Association (PBA) when assessing repayment capacity.
This requirement is intended to ensure that housing finance remains within a borrower’s ability to repay.
Simplified Financing for Smaller Loans
The new framework also introduces specific measures for smaller housing-finance facilities.
For loans of up to Rs. 5 million, lenders may provide financing by placing a lien on the property. This can include the use of 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, valuation by a valuator from the PBA’s approved panel is mandatory.
Insurance and Digital Verification Requirements
Banks and DFIs are required to obtain comprehensive insurance or takaful coverage for properties financed through housing loans.
The revised framework also introduces standardised financing documents. Where digital signatures are used, they must be authenticated through one-time passwords (OTPs) or another approved form of two-factor authentication.
Housing Loan Applications to Be Available in Urdu and English
Another notable change is the introduction of simplified housing-finance application forms for salaried applicants, formal businesses, and individuals earning through informal sources.
These forms must be made available in both physical and digital formats, and in Urdu and English.
The revised framework represents an effort to make the housing-finance process more accessible and easier to understand for different categories of borrowers.
With higher potential financing coverage, longer repayment periods, broader eligible uses, and simplified application procedures, the updated SBP housing finance rules could provide greater flexibility for Pakistanis seeking financing to purchase, construct, or improve residential properties. However, actual financing remains subject to individual eligibility, repayment capacity, property valuation, and the lending institution’s applicable requirements.
