The State Bank of Pakistan (SBP) amending the Housing Finance Prudential Regulations restricted the transfer of housing finance to other banks/DFIs before completion of three years. The banks/DFIs also have been directed not to extend housing finance for a tenure exceeding 25 years.
According to new Housing Finance Prudential Regulations, amended recently, banks/DFIs may consider providing additional finance for renovation or extension but not before 3 years of the last finance availed by the borrower for the same house. Under Regulation HF 2, 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 three years with a bank/DFI as a mortgagee.
Banks/DFIs have been asked to take a realistic construction schedule from the borrower before allowing disbursement of the initial financing for construction. In addition for construction cases, the sanctioned financing shall also be released in tranches commensurate with the stage of construction.
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 3 years of the last finance availed by the borrower for the same house. However, the requirements regarding debt burden ratio and loan-to-value ratio shall be duly observed while allowing such financing.
As per Regulation HF 3, total monthly amortisation payments, including the housing finance under consideration and repayment obligations against all other consumer financings, should not exceed 50 percent 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.
Regulation HF 5, which defines the Limit on Exposure against Real Estate Sector, clarified that the banks/DFIs shall not take exposure on the real estate sector exceeding 10 percent of the aggregate of their advances and investments (excluding investments in Government securities) at any point in time.
Under Regulation HF 6 of Financing Tenure, the banks/DFIs have been directed not to extend housing finance for a tenure exceeding 25 years. The duly approved financing policy of the banks/DFIs shall define the maximum tenure 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 tenure beyond 25 years, it added.
Regulation HF 7 for Property Assessment, said that the banks/DFIs have been allowed use their internal resources to assess the properties having market value up to Rs 3.0 million and the properties valuing up to Rs 3.0 million should not be subject to assessment by valuator.
Similarly, the properties valuing more than Rs 10 million should be subject to assessment by at least two valuators listed on a Pakistan Banks Association (PBA) approved panel. Some changes has been made in housing finance classification and another term of OAEM has been inducted, which mean a category, where mark-up or principal is overdue by 90 days or more from the due date and it will not required any provisioning, however, a default notices to be issued to borrower.
According to new classification of substandard a loan where mark-up or principal is overdue by 180 days or more from the due date. Period of doubt loan also has been enhanced and it means where mark-up or principal is overdue by one year or more from the due date. Similarly, loss category means where mark-up or principal is overdue by two years or more from the due date.
According to Regulation HF 11, the banks/DFIs have been directed to adopt a 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.
Secondly, 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.
In addition, 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. While, considering rescheduling/restructuring, banks/DFIs should, inter alia, take into account the repayment capacity of the borrower. The condition of 50 percent 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.
The SBP has also asked for proper Management Information System (MIS) and Reporting of house finance. Banks/DFIs will ensure adequate hardware, software, logistics support and strong IT infrastructure for effective and efficient monitoring of housing finance portfolio, it added.
In addition, the management of banks/DFIs shall put in place a mechanism to monitor conditions in housing finance market at least on half-yearly basis to ensure that their policies are aligned with current market conditions. The banks/DFIs have been directed not to disburse housing finance unless ensured that prior permission/clearance for construction and/or approved map of house has been obtained by the borrower from the relevant authorities, wherever required. In case of financing for purchase of a house/flat, it shall be ensured that the house was constructed with prior permission/clearance from relevant authorities, it said.
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