For millions of Pakistanis dreaming of owning a home, a major change just arrived as State Bank of Pakistan opened the door to housing loans of up to 30 years, giving homebuyers and builders a much longer window to repay. But there’s more, new rules on income, credit checks, property valuation and insurance will also shape who can qualify.
The new framework, which has taken effect immediately, is expected to provide greater flexibility to individuals seeking financing to purchase, construct, renovate or expand residential properties.
Under revised rules, housing finance can be obtained for the purchase of a house or apartment, acquisition of a plot, construction of a house on an already-owned plot, and renovation or extension of an existing home.
The facility will also cover renewable energy installations, including solar systems, although financing for such projects will be limited to a maximum period of 10 years.
The extension of the maximum financing period to 30 years is among the most significant changes introduced by the central bank. The longer repayment window could allow eligible borrowers to spread their housing loan repayments over a greater period, potentially making long-term home financing more manageable. However, loan approval will remain dependent on the borrower’s income, credit history and the lending institution’s eligibility criteria.
SBP has also strengthened requirements for assessing borrowers’ financial capacity. Before approving housing finance, banks and DFIs will be required to obtain the applicant’s latest credit report from the SBP’s Electronic Credit Information Bureau (e-CIB) or a licensed private credit bureau.
The move is aimed at giving lenders a clearer picture of an applicant’s existing loans and financial obligations before extending additional financing. A key condition under the new framework is that the combined monthly installments of housing finance and other consumer loans cannot exceed 65% of the borrower’s net disposable income.
This means banks will have to assess not only whether an applicant qualifies for a housing loan, but also whether the borrower will have sufficient disposable income remaining after paying existing and proposed loan installments.
The revised regulations have also introduced specific valuation requirements for larger housing loans. For housing finance exceeding Rs10 million (Rs1 crore), banks or DFIs must obtain a property valuation from at least one valuer approved by the Pakistan Banks’ Association (PBA).
For financing of up to Rs10 million, banks will be permitted to rely on their own internal valuation.
Mortgage requirement
The property being purchased or constructed through housing finance will generally have to be mortgaged in favour of the financing bank or DFI.
For housing finance of up to Rs5 million (Rs50 lakh), however, a lien on the property will also be acceptable if accompanied by a Green Property Certificate or an equivalent document.
The new framework also makes insurance or Takaful coverage mandatory for residential units financed through housing loans.
The coverage amount must be equal to the outstanding housing finance balance.
Banks and DFIs will also be required to provide borrowers with complete information regarding the applicable insurance or Takaful coverage, premiums and other related charges.
SBP said the new framework replaces several housing finance instructions issued between 2019 and 2021, bringing the applicable requirements under a consolidated set of rules for banks and DFIs. The sweeping changes come as Pakistan continues to face a significant housing demand challenge, while high construction and property costs have made access to affordable long-term financing increasingly important.
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