Good news for citizens seeking housing finance

The State Bank of Pakistan (SBP) has extended the maximum repayment period for housing finance to 30 years under a revised set of rules that take effect immediately.

The SBP said the new framework replaces several housing-finance instructions issued between 2019 and 2021. Banks and development finance institutions have been directed to implement the revised rules.

Under the new framework, housing finance can be used to buy a house, flat or plot, build a home on an existing plot, renovate or extend an existing property, and install renewable-energy systems such as solar panels.

Loans for renewable-energy projects will have a maximum repayment period of 10 years.

The SBP has also tightened requirements for assessing borrowers’ ability to repay. Before approving a loan, banks and DFIs must obtain the applicant’s latest credit report from the central bank’s Electronic Credit Information Bureau (e-CIB) or a licensed private credit bureau.

Under the revised framework, the combined monthly repayments on proposed housing finance and other consumer loans must not exceed 65 percent of the borrower’s net disposable income.

For housing loans of more than 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, an internal valuation will be permitted.

The SBP also said that properties purchased or constructed with housing finance will generally have to be mortgaged in favor of the lending bank or DFI. For housing finance of up to Rs.5 million, however, a lien over the property may be accepted if accompanied by a Green Property Certificate or an equivalent document.

The revised rules also make insurance or takaful cover compulsory for financed residential units. The coverage must be equal to the outstanding housing-finance amount.

Banks must also provide borrowers with full information about the coverage, premiums and any other applicable charges.