Revised SBP regulations allow banks and DFIs to finance up to 90% of property value while introducing updated borrower, valuation and disclosure requirements.
KARACHI: The State Bank of Pakistan (SBP) on Tuesday revised Housing Finance Prudential Regulations-2026, introducing updated requirements for banks and development finance institutions (DFIs covering housing finance, borrower assessment, property security, disclosures and loan classification.
Under the revised regulations, the maximum loan-to-value (LTV) ratio for housing finance has been set at 90:10, allowing financing of up to 90 percent of the property’s value, subject to applicable requirements.
The SBP defines housing finance as financing provided to individuals for purchasing a residential house or apartment, constructing a house on an already owned plot, or purchasing a plot followed by construction. Financing for improvements to a house or apartment is also covered.
Housing finance purposes expanded
Banks and DFIs can provide housing finance for the purchase of a house or apartment, construction of a house on an already owned plot, and purchase of a plot followed by construction.
The regulations also allow financing for the extension or expansion of an existing house, renovation of a housing unit and installation of renewable-energy solutions in housing units.
The maximum tenor for housing finance has been set at 30 years, while financing for renewable-energy solutions can have a maximum tenor of 10 years.
Debt burden capped at 65%
The revised regulations require total monthly amortisation payments, including the proposed housing finance and other outstanding consumer-financing obligations, to remain within 65 percent of the borrower’s net disposable income.
Banks and DFIs must also obtain the latest credit information report of each prospective borrower from the SBP’s Electronic Credit Information Bureau (e-CIB) or a private credit information bureau licensed by the central bank.
Where applicable, banks and DFIs will use informal-income estimation models, or proxy models, circulated by the Pakistan Banks’ Association (PBA) to assess income and repayment capacity for housing finance.
Special provisions for low-cost housing
The SBP defines low-cost housing as a house of up to five marlas or an apartment of up to 1,000 square feet, with a value not exceeding PKR10 million.
The definition also covers a house of up to 10 marlas in a rural area, provided its value does not exceed PKR10 million.
For housing finance of up to PKR5 million, banks and DFIs may extend financing by marking a lien on the property in the records of the relevant land-record authority.
Where applicable, financing may also be extended against a Green Property Certificate issued by the Punjab Land Records Authority or an equivalent certificate from the competent authority in another province.
New property valuation requirements
Housing finance exceeding PKR10 million will require property assessment by at least one valuator listed on the PBA-approved panel.
For housing finance of up to PKR10 million, the property may be assessed through the bank’s or DFI’s internal resources.
The regulations also allow banks and DFIs to rely on the valuation of a single unit for housing units of the same category, layout and size within the same society or colony, rather than conducting separate valuations for every unit.
Digital applications and borrower protection
Banks and DFIs are required to adopt simplified housing-finance application forms and make them available to applicants in both physical and digital formats.
The standardised financing documents prepared and circulated by the PBA must be used. Applicants’ signatures and thumb impressions may be obtained physically or digitally, while digital signatures and thumb impressions must be verified through a one-time password or another two-factor authentication mechanism.
Financing documents must clearly set out all terms and conditions of the housing finance in both Urdu and English.
Banks and DFIs must also provide borrowers with a copy of the signed finance agreement, notification of changes in instalment amounts, an annual statement of account and full disclosure of fees and costs, including prepayment penalties and the annualised percentage rate.
The regulations specifically state that there should be no hidden charges.
Insurance and takaful made mandatory
Banks and DFIs must obtain comprehensive insurance or takaful coverage for the financed housing unit through an insurance or takaful company.
The coverage must equal the outstanding housing-finance exposure, while the nature and type of insurance or takaful, premium rate and other charges must be clearly disclosed to the borrower.
New rules for overdue housing finance
The revised regulations provide a framework for the classification and provisioning of housing finance.
Housing finance is classified as OAEM when mark-up/profit or principal is overdue for 90 days or more. It becomes substandard when the amount remains overdue for 180 days or more, doubtful after one year and loss after two years.
For substandard financing, the required provision is 25 percent of the specified outstanding amount after taking into account eligible liquid assets and the applicable forced-sale value of mortgaged properties, or the IFRS-9 Expected Credit Loss amount, whichever is higher.
The requirement rises to 50 percent for doubtful financing and 100 percent for loss financing, subject to the applicable forced-sale value benefit schedule.
The benefit of forced-sale value against non-performing loans will cease after five years from the date of classification.
Rescheduling and restructuring rules
Banks and DFIs must maintain a board-approved policy governing the rescheduling and restructuring of housing finance.
Housing-finance facilities cannot be rescheduled or restructured more than once within any two-year period, and such action cannot be undertaken solely to avoid classification or provisioning requirements.
The tenure may be extended by a maximum of five years beyond the original agreed tenure, subject to the overall maximum housing-finance tenor of 30 years.
Banks and DFIs must also consider the borrower’s repayment capacity when assessing a restructuring proposal.
The revised regulations provide a comprehensive framework for housing finance, with the SBP setting requirements for higher financing limits, borrower assessment, property security, transparency, repayment capacity, risk classification and restructuring.