Banks Can Accept Third Party Guarantee Against Low-Cost Housing Finance Scheme

To facilitate the banks in extending low-cost housing finance, the State Bank of Pakistan (SBP) eased off a major condition. SBP has allowed the banks to accept a personal guarantee of a third party until the completion of the housing unit and the perfection of the mortgage.Currently, applicants face difficulties in obtaining housing finance, especially for low-cost housing, as banks are reluctant to take the risk of the house not being completed or documentation completion. The completion of a housing unit and mortgage creation takes time. To address this issue for applicants and banks, the SBP has allowed acceptance of a third party guarantee for this period up to a maximum of one year.The guarantee will remain valid for a maximum period of one year. This step would help promote the homeownership of potential borrowers wishing to avail housing finance under the Government Markup Subsidy Scheme issued by the State Bank of Pakistan on October 12, 2020.The third-party guarantee will cover the period from the disbursement of the loan to the completion of construction, and risk coverage becomes available by the Pakistan Mortgage Refinance Company. Acceptance of third-party personal guarantee will provide additional comfort to banks for extending low-cost housing finance, an area banks are interested in for its business potential. It is expected that with this move, banks will increase their efforts to ensure that the benefits of the mark-up subsidy scheme reach marginalized segments of the society who currently do not own a house.On behalf of the government, the State Bank of Pakistan launched a low-cost housing finance scheme to reduce the shortage of over 10 million housing units in Pakistan. Under this scheme, customers could purchase a housing unit through commercial banks against the fixed profit rate and minimum down payment.More than 8,000 applications have been received in the mark-up subsidy scheme by the banks. 1,820 applications have been approved with an outlay of Rs. 5 billion, and the pending applications are being processed expeditiously.The central bank, along with various commercial banks, is working to make the scheme feasible for customers, which could be seen as the amendment of various rules and regulations in the banking industry.