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All You Need to Know about SBP's mechanism for house financing

Investing
26 Apr 2021
All You Need to Know about SBP's mechanism for house financing

All You Need to Know about SBP's mechanism for house financing

Are you thinking of availing this amazing opportunity of house financing to finally become an owner of your own property? If yes, then you need to read this blog completely. Every information regarding the latest mechanism of SBP’s housing financing scheme.

The State Bank of Pakistan has originated a mechanism for the markup subsidy for housing finance and sent it to the relevant authorities to ensure the distribution of the loans amongst people. According to the circular available on the SBP website since 25th March, it was sent to the presidents, Chief Executives of all Banks, Microfinance Banks, and other Development Finance Institutions (DFIs).

Sources have reported that the detailed circular has been submitted to all banks and the DFIs, the Executing Agencies (EAs) have been advised to submit their claims to the Development Finance Support Department (DFSD), SBP BSC, Karachi within 15 working days from the end of each quarter. The EAs will gauge financing applications of clients as per parameters of markup subsidy scheme for Housing Finance approved by the Federal Cabinet and circulated by the State Bank of Pakistan to all banks/DFIs on March 25, 2021, and revised from time to time.

This is part of the new initiative by PM Khan to provide housing to low-income strata of the society, under the Naya-Pakistan Housing scheme. The government has ensured the provision of loans and mortgage facilities to the people of Pakistan. For this, many institutional and regulatory changes in the laws of the country.

What does the circular entail?

As per the details mentioned in the circular, the people qualified for the subsidy program include all the men and/or women holding CNIC. The person must be a first-time homeowner, and according to the scheme one person can take the loan facility under this scheme only once.

The facility is divided between and including Tier 0 and Tier 3.

Tier 0

The Financing under Tier 0 is for a House up to 125 square yards, meaning (5 Marla) or an apartment/flat with a covered area up to 1250 square feet. The loan can be gotten from microfinance banks for financing housing units under non-NAPHDA projects. The Maximum size of the loan for a Tier 0 property is Rs2 million.

The time period of the loan is a minimum of five years and a maximum of twenty years, depending upon the borrower’s choice. For the first five years, the interest rate would be 5 %, 7 % for the next five years, and for loan tenure greater than 10 years, the market rate would be applied after the first 10 years of the borrowing date.

Tier 1

The policies announced by SBP say that under Tier 1, the borrower would get a House up to 125 square yards or 5 Marla with a maximum covered area of 850 sq ft or a Flat with a maximum covered area of 850 sq ft. The loan amount under Tier 1 is available through banks for financing under NAPHDA projects. The maximum size of the loan would be Rs2.7 million. The interest rates for the Tier 1 housing will be 3 % for the first five years and 5 % for the next five years. For loans with tenure greater than 10 years, the market rate would be applied after the first 10 years of getting the loan date.

Tier 2

As per the policy of Tier 2, the borrower can get a house up to 125 square yards, meaning 5 Marla, or an apartment with a covered area up to 1250 square feet.

Financing under Tier 2 is available through banks for financing of housing units under non-NAPHDA projects. The maximum size of the loan would be Rs6 million.

The duration of the loan is a minimum of five years and a maximum of twenty years, depending upon the borrower’s choice. For the first five years, the interest rate would be 5%, 7% for the next five years, and for loan tenure greater than 10 years, the market rate would be applied after the first 10 years of the borrowing date.

The difference between Tier 0 and Tier 2 is the source of loan and the maximum size of the loan.

Tier 3

Under Tier 3, a borrower can get a house up to 250 square yards, meaning 10 Marla, or an apartment with a covered area up to 2000 square feet. Loan under Tier 3 is also available through banks that allow financing of housing units under non-NAPHDA projects. The maximum size of the loan would be Rs10 million.

The duration of the loan is a minimum of five years and a maximum of twenty years, depending upon the borrower’s choice. For the first five years, the interest rate would be 7 %, 9 % for the next five years, and for loan tenure greater than 10 years, the market rate would be applied after the first 10 years of the borrowing date.

It is worth mentioning that the circular is subject to change as required by the authorities. According to the State Bank, the financing facility for a borrower will be sanctioned and disbursed by the EA after completion of documentation formalities.

“No further evaluation on the eligibility of borrowers would be conducted by the State Bank of Pakistan,” said the SBP.

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