Housing finance: SBP revises prudential regulations

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Key points

• According to SBP, the revised regulations will supersede a number of earlier circulars issued between 2019 and 2021, including those concerning housing and SME finance.
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• Apna Ghar Scheme: Banks approve Rs204bn housing finance, PM informed.
• Total monthly amortization payments, including the proposed housing finance and other consumer loans, must not exceed 65% of the borrower's net disposable income.
• For housing finance exceeding PKR 10 million, banks and DFIs must obtain a property valuation from at least one valuator on the PBA-approved panel.

KARACHI: The State Bank of Pakistan (SBP) has comprehensively reviewed and revised the prudential regulations for housing finance in view of the evolving dynamics of the housing finance sector.

According to SBP, the revised regulations will supersede a number of earlier circulars issued between 2019 and 2021, including those concerning housing and SME finance. Furthermore, the revised Prudential Regulations would take effect immediately and advised all banks and Development Finance Institutions (DFIs) to ensure strict compliance with the updated regulatory framework.

As per revised regulations, banks and DFIs will extend housing finance to borrowers solely for purchase of a house or apartment or plot; Construction of a house on a plot already owned by the borrower; extension, renovation or expansion of an existing house and installation of renewable-energy solutions in housing units. Apna Ghar Scheme: Banks approve Rs204bn housing finance, PM informed.

SBP directed the banks and DFIs to obtain the latest credit-information report of each prospective borrower from the Electronic Credit Information Bureau (e-CIB) of the SBP, or from any private licensed Credit Information Bureau.

Notably, the maximum tenor for housing finance will be thirty (30) years. In the case of renewable-energy financing, the maximum tenor will be ten (10) years. The maximum Loan-to-Value (LTV) ratio for housing finance shall be 90: 10.

Total monthly amortization payments, including the proposed housing finance and other consumer loans, must not exceed 65% of the borrower's net disposable income. Banks and DFIs shall additionally apply PBA-approved proxy models, where applicable, to assess informal income and repayment capacity.

Banks and DFIs shall obtain all title and ownership documents from customers and provide a signed acknowledgement of the documents received.

In practice, the financed house, apartment or plot must be mortgaged in favour of the bank or DFI. For housing finance up to PKR 5 million, financing may be secured through a lien on the property, backed by a Green Property Certificate or equivalent document issued by the relevant authority.

Renewable-energy financing may be secured through hypothecation of installed equipment, such as solar panels, inverters and batteries, or other acceptable security.

For housing finance exceeding PKR 10 million, banks and DFIs must obtain a property valuation from at least one valuator on the PBA-approved panel. For financing up to PKR 10 million, internal valuation may be applied. For similar housing units of the same category, layout and size within a society or colony, a single valuation may be applied for all such units.

Banks and DFIs must ensure comprehensive insurance or Takaful coverage for financed housing units, equal to the outstanding housing-finance amount. The borrower must be clearly informed of the coverage type, premium rate and all applicable charges. Apna Ghar Scheme to finance 150, 000 homes by June 2027.

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For now, housing finance: SBP revises prudential regulations remains the part of the story worth watching, and further updates are likely as more details are confirmed.