SBP Allows Banks to Finance Up to 90% of Property Value

The State Bank of Pakistan has updated its housing finance regulations, permitting banks and development finance institutions to lend up to 90% of a property's worth. These changes became effective immediately, superseding several circulars issued between 2019 and 2021.

Under the new guidelines, banks can offer housing finance for various purposes, such as purchasing a house, constructing on an existing plot, renovating an existing house, or installing renewable energy systems. The maximum repayment term for these loans is capped at 30 years, while renewable energy financing can extend up to 10 years.

The loan-to-value ratio is set at a maximum of 90:10, enabling financing to cover up to 90% of the property's value. A repayment capacity limit has also been established, stipulating that total monthly amortization payments, including housing finance and other consumer loans, should not surpass 65% of the borrower's net disposable income.

In order to assess borrowers' repayment capacity, banks and DFIs are required to obtain the latest credit information report from the State Bank's Electronic Credit Information Bureau or a licensed private credit bureau. Alternative proxy models from the Pakistan Banks' Association may also be used if applicable.

Prospective borrowers must provide title and ownership documents for the financed property, while lending institutions must acknowledge receipt of these documents. Generally, the financed property will be mortgaged with the lending bank or DFI. For financing up to Rs. 5 million, a lien on the property can serve as security if accompanied by a Green Property Certificate or an equivalent document from the relevant authority.

Financing above Rs. 10 million necessitates a property valuation from at least one valuator approved by the Pakistan Banks' Association. Banks can use their internal valuations for finance up to Rs. 10 million.

Additionally, comprehensive insurance or Takaful coverage equal to the outstanding housing finance amount is mandatory for financed housing units. Borrowers must be informed about the type of coverage, premium rate, and applicable charges.

This revised framework is expected to stimulate housing finance activity in Pakistan, making homeownership more accessible for a larger segment of the population.