The State Bank of Pakistan (SBP) has introduced significant changes to the country’s housing-finance framework, giving prospective homeowners greater flexibility in obtaining financing. The revised prudential regulations apply to banks and Development Finance Institutions (DFIs) and have taken effect immediately.
One of the most notable changes is the extension of the maximum housing-finance repayment period to 30 years. The longer repayment period could make home financing more manageable for borrowers by reducing their monthly instalments, although a longer loan generally results in higher total financing costs over time.
Financing Available for More Housing Needs
Under the updated framework, banks and DFIs can provide financing for several housing-related purposes. These include purchasing a house, apartment or plot, constructing a home on an already-owned plot, and extending, renovating or expanding an existing residential property.
The rules also specifically allow financing for renewable-energy solutions installed in residential properties. This could make it easier for homeowners to invest in solar panels and other energy-related systems through formal financing.
Renewable-energy financing can have a maximum repayment period of 10 years.
Up to 90% Loan-to-Value Ratio
The revised regulations set the maximum Loan-to-Value (LTV) ratio at 90:10. In simple terms, eligible borrowers may potentially obtain financing of up to 90% of the relevant property value, while contributing the remaining portion themselves.
The actual amount approved, however, will continue to depend on the lender’s assessment of the borrower, the property and repayment capacity.
Monthly Payments Limited to 65% of Income
To control borrowers’ repayment burden, banks and DFIs must ensure that total monthly amortization payments do not exceed 65% of the borrower’s net disposable income.
This calculation includes the proposed housing-finance payment as well as payments on other consumer loans. For borrowers earning informal income, lenders may also use proxy models approved by the Pakistan Banks’ Association (PBA) when assessing income and repayment capacity.
Stronger Credit and Property Checks
The revised rules require lenders to obtain the latest credit report of each prospective borrower from the SBP’s Electronic Credit Information Bureau (e-CIB) or a licensed private Credit Information Bureau.
Banks and DFIs must also collect relevant ownership and title documents and provide borrowers with a signed acknowledgement confirming the documents received.
As a general requirement, the financed house, apartment or plot must be mortgaged in favor of the financing institution. For housing finance of up to PKR 5 million, a lien may be accepted in certain cases where the property has a Green Property Certificate or an equivalent document issued by the relevant authority.
New Valuation Requirements
The revised framework also sets specific requirements for property valuation.
For housing finance exceeding PKR 10 million, lenders must obtain a valuation from at least one valuator included on the PBA-approved panel. For financing of PKR 10 million or less, banks and DFIs may use an internal valuation process.
The regulations also provide flexibility for similar residential units located within the same housing society or colony. Where properties have the same category, layout and size, a single valuation may be used.
Security for Renewable-Energy Financing
The new framework recognizes renewable-energy equipment as potential security for financing. Solar panels, inverters and batteries installed at a housing unit may be hypothecated, alongside other forms of security acceptable to the lender.
This provision could support greater access to financing for households seeking to reduce their dependence on conventional electricity sources.
Insurance and Takaful Requirements
Banks and DFIs must ensure that financed housing units have comprehensive insurance or Takaful coverage equal to the outstanding amount of housing finance.
Borrowers must also receive clear information about the type of coverage, applicable premium rate and other related charges.
What the New Rules Mean for Homebuyers
The revised regulations could make housing finance more accessible by combining a longer repayment period with a higher maximum LTV ratio. For eligible borrowers, a 30-year tenor may help bring monthly payments within their affordability range, while the 90% LTV limit could reduce the upfront amount required for a property purchase.
At the same time, borrowers should carefully consider the overall cost of long-term financing. A lower monthly payment does not necessarily mean a lower total cost, as financing charges accumulate over a longer period.
The new framework therefore represents a significant update to Pakistan’s housing-finance landscape. By expanding eligible financing purposes, supporting renewable-energy investments and providing greater flexibility in repayment and property financing, the SBP’s revised rules could create new opportunities for households seeking to purchase, build or improve their homes.