SBP Revises Housing Finance Rules

KARACHI: The State Bank of Pakistan (SBP) has introduced revised prudential regulations for housing finance, updating the requirements that banks and Development Finance Institutions (DFIs) must follow with immediate effect.

Under the updated framework, housing finance can be obtained for purchasing a house, apartment or plot, constructing a home on a plot already owned by the borrower, extending or renovating an existing residence, and installing renewable-energy systems in housing units.

The revised regulations replace several earlier circulars issued between 2019 and 2021 relating to housing and SME financing. SBP has instructed all banks and DFIs to ensure full compliance with the new requirements.

The maximum repayment period for housing finance has been fixed at 30 years, while financing for renewable-energy installations can extend up to 10 years. The maximum Loan-to-Value (LTV) ratio has been set at 90:10.

Under the new framework, a borrower’s combined monthly amortisation obligations, including the proposed housing facility and other consumer loans, cannot exceed 65% of net disposable income. Where relevant, lenders must also use proxy models approved by the Pakistan Banks’ Association (PBA) to evaluate informal income and determine repayment capacity.

Before approving financing, banks and DFIs are required to obtain the prospective borrower’s latest credit report through SBP’s Electronic Credit Information Bureau (e-CIB) or a privately licensed Credit Information Bureau.

Lenders must also collect the borrower’s latest title and ownership documents and provide a signed acknowledgement confirming receipt of those documents.

The property being financed must generally be mortgaged in favour of the lending bank or DFI. For housing facilities of up to PKR5 million, however, lenders may accept a lien over the property where it is supported by a Green Property Certificate or an equivalent document issued by the relevant authority.

For renewable-energy financing, equipment such as solar panels, inverters and batteries may be hypothecated as security, alongside other forms of security acceptable to the lender.

Where housing finance exceeds PKR10 million, banks and DFIs must obtain a property valuation from at least one valuator included on the PBA-approved panel. For facilities of PKR10 million or less, institutions may rely on an internally conducted valuation.

The regulations further permit lenders to use one valuation for comparable housing units within the same housing society or colony when the properties share the same category, layout and size.

Banks and DFIs are also required to maintain comprehensive insurance or Takaful coverage on financed residential properties, with coverage equal to the outstanding housing-finance amount. Borrowers must be clearly informed about the nature of the coverage, applicable premium rates and all related charges.