Regulation HF 2: Types of Housing Finance

 Banks/DFIs may provide following types of housing finance to borrowers:

 a) Purchase, construction, renovation or extension of residential units to individuals, co-
borrowers including non-resident Pakistanis.
 b) Financing for residential plots plus construction.
 c) Balance transfer of existing finance facility of borrower from other banks/DFIs, subject to the
condition that the bank/DFI where facility is transferred would not extend financing higher than the
balance amount in the transferring bank/DFI. Further, borrower cannot transfer housing finance to
other banks/DFIs before completion of eighteen (18) months with a bank/DFI as a mortgagee.
 d) For Solar Energy Solutions to be installed for residential use, banks/DFIs are allowed to
extend financing for a maximum period of ten years against any security arrangement as per their
credit and risk management policies in addition to hypothecation of asset. Such financing shall be
treated as home improvement/renovation financing for reporting purposes.
 Banks/DFIs shall not allow housing finance purely for the purchase of land/plots; rather, such
financing would be extended for the purchase of land/plot and construction on it. Accordingly, the
sanctioned financing limit, assessed on the basis of repayment capacity of the borrower, value of
land/plot and cost of construction on it etc., shall be disbursed in tranches, i.e. upto a maximum of
50% of the financing limit can be disbursed for the purchase of land/plot (however the amount
disbursed for purchase of plot must not exceed the 85% of the market value/cost of land/plot), and the
remaining amount be disbursed for construction there-upon. Further, the bank/DFI will take a realistic
construction schedule from the borrower before allowing disbursement of the initial financing for
construction. For construction-only cases, the sanctioned financing shall also be released in tranches
commensurate with the stage of construction. Moreover, if an individual gets construction finance and
there is cost overrun due to which property remains incomplete, banks/DFIs may entertain the
customer for additional finance for completion of house, keeping in view the DBR and cushion in
overall Loan-to-Value (LTV) ratio.
 Further, if there is sufficient cushion available as per valid valuation/revaluation, banks/DFIs
may consider providing additional finance for renovation or extension but not before two (02) years of
the last finance availed by the borrower for the same house. However, financing for Solar Energy
Solutions only can be extended before the completion of two (02) years from the date of last finance
availed by the borrower for the same house. The requirements regarding debt burden ratio and LTV
ratio shall be duly observed while allowing such financing.

Regulation HF 3: Debt Burden Ratio

Total monthly amortization payments, including the housing finance under consideration and repayment obligations
against all other consumer financings, should not exceed 50% of the net disposable income of the prospective
borrower. In case any financing of the borrower requires quarterly, bi-annual or annual payments, the debt burden
ratio shall be calculated by assuming that the financing is repaid in substantially equal monthly payments during its
term. While calculating net disposable income, verifiable income of the borrower and repayment capacity should be
taken into account. The income of co-borrower can be clubbed after his/her written consent.
The above measures would be in addition to banks’/DFIs’ usual evaluations of each proposal concerning credit
worthiness of the borrowers to ensure that the banks’/DFIs’ portfolio under housing finance fulfills the prudential
norms and instructions issued by the State Bank of Pakistan and does not impair the soundness and safety of the
bank/DFI itself. They shall maintain record evidencing assessment of repayment capacity of the borrower.

Regulation HF 4: Loan to Value Ratio

The housing finance shall be provided at a maximum Loan to Value ratio of 85:15.
Regulation HF 5: Limit on Exposure against Real Estate Sector
1) The banks/DFIs shall not take exposure on the real estate sector exceeding 10% of the aggregate of their
advances and investments (excluding investments in Government securities) at any point in time.
2) For the purpose of this regulation, Real Estate Sector shall include:
a) Individual/family owned houses for the purpose of self-occupation or renting out (non-commercial usage).
b) Builders, developers, contractors, corporations, property dealers and any other person dealing in residential,
commercial and industrial real estate, e.g., undeveloped land, housing societies/residential buildings, office buildings,
multi-purpose commercial premises, hotels, shopping malls, retail space, retail store buildings, industrial space,
factories, warehouses.
c) Subsidiaries of (b)
d) Debt instruments and shares issued by (b) and (c) above and units of Real Estate Investment Trusts (REIT) issued
by a REIT Management Company.
3) In case of 2) b), such exposure shall be counted towards the above limit of 10% where the prospects for
repayment and recovery in the event of default depend primarily on the cash flows generated by real estate.
4) Infrastructure Project Financing (IPF), as defined in the SBP’s guidelines for Infrastructure Project Financing as
amended form time to time, shall not be included for calculating the above limit.
5) With a view to promote the low cost/ low income/affordable housing, financings under Government Housing
Scheme and initiatives shall also be not included for calculating above limit.
The above criterion is, however, not applicable to the specialized housing finance companies like House Building
Finance Company Limited as their core business is extending housing finance to the borrowers.

Regulation HF 6: Financing Tenor

The banks/DFIs shall not extend housing finance for a tenor exceeding 25 years. The duly approved financing policy
of the banks/DFIs shall define the maximum tenor keeping in view maturity profile of their assets and liabilities. In
case the financing is rescheduled/restructured, it should not result in extension in total tenor beyond 25 years.

Regulation HF 7: Property Assessment

Banks/DFIs shall ensure that a proper property valuation is done by a valuer on approved panel of Pakistan Banks
Association and valuation report provides banks/DFIs with an in-depth assessment of the property that is being
offered as security.
The housing finance upto Rs. 10 million should be subject to assessment of the property by at least one valuator
listed on PBA approved panel and the housing finance above Rs. 10 million should be subject to assessment of the
property by at least two valuators listed on PBA approved panel.
However, the properties valuing upto Rs. 3.0 million should not be subject to assessment by valuator. Banks/DFIs
can use their internal resources to assess the properties having market value upto Rs. 3.0 million.

Regulation HF 8: Creation of Mortgage

The house/plot (for construction of house) financed by the bank/DFI shall be mortgaged in bank’s/DFI’s favour by way
of equitable or registered mortgage.

Regulation HF 11: Rescheduling/Restructuring of Non-Performing Housing Finance

a) Banks/DFIs shall have policy for rescheduling/restructuring of non-performing housing finance, which should be
approved by the Board of Directors or by the Country Head/Executive/Management Committee in case of branches
of foreign banks.
b) Rescheduling/restructuring should not be done just to avoid classification of financing and provisioning
requirements. In this connection, banks/DFIs shall ensure that house financing facilities of any borrower should not
be rescheduled/restructured more than once within two years.
c) For the purpose of rescheduling/restructuring, banks/DFIs may change the tenure of the financing by maximum
two years beyond the original tenure agreed with the customer subject to maximum financing tenure of 25 years.
d) While considering rescheduling/restructuring, banks/DFIs should, inter alia, take into account the repayment
capacity of the borrower. The condition of 50% of Debt Burden Requirement (DBR) shall not be applicable to
financing rescheduled/restructured. However, any new house financing facility extended to a borrower who is availing
any rescheduled/restructured facility shall be subject to observance of minimum DBR.
e) The status of classification of the non-performing assets shall not be changed because of
rescheduling/restructuring unless borrower has paid at least 10% of the rescheduled/restructured amount (including
principal and mark-up both) or six installments as per terms & conditions of the rescheduling/restructuring whichever
is high. However, for internal monitoring purpose, banks/DFIs may re-set the dpd (days past due) counter of the
newly created finance to “0” dpd.
f) Provisions already held against non-performing financing, to be rescheduled/restructured, will only be reversed if
condition of 10% recovery or six installments is met.
g) If the borrower defaults (i.e. reaches 180 dpd) again within two years after declassification, the financing shall be
classified under the same category in which it was prior to rescheduling/restructuring. Banks/DFIs, however, at their
discretion may further downgrade the classification based on their own internal policies.