Training Session on General
Housing Finance
Syed Nabeel Ahmed Rizvi
Business Manager-Secured
Products
United Bank Limited
Mortgage Industry Overview
In a 2009 report, World Bank estimated a Housing
Shortfall of around 8 million units in Pakistan
ABAD claims annual incremental demand of 600,000
units of which 50% is met by the private/public
investment leaving an annual shortfall of 300,000
units
Taking 600,000 incremental demand and 500,000
units from the backlog, total annual housing needs
come to 1.1 million
Mortgage Industry Overview
At an average price of Rs. 1 million per unit, total funding
requirement is Rs 1.1 trillion per year
Assuming that only 10% of housing needs can be
converted into effective demand, total funding needs are
Rs.110 billion
At 70% LTV (Loan–to-Value Ratio), this translates into Rs.
77 billion per annum housing credit requirement
Mortgage lending in Pakistan less than 1% of GDP, far from
the 14 % registered in Chile, 5 % in Colombia, 2.5 % in
India and 65% in USA
Housing Finance Market
No. of
Institutions
involved in
Housing
Finance
•
•
•
•
•
Commercial Banks
Islamic Banks
DFIs
MFBs
Islamic Banking Branches
: 22
: 05
: 02
: 02
: 07
Mortgage Market of Pakistan
(Gross Outstanding)
Major Stakeholder
Banks
Government
Authorities
Realtors
Customer
Mortgage
Finance
Appraisal
Firm
Law Firms
Local
Authorities
REGULATIONS FOR HOUSING
FINANCE
REGULATION R-15
• Banks/DFIs shall determine the housing finance limit, both in urban
and rural areas, in accordance with their internal credit policy,
credit worthiness and loan repayment capacity of the borrowers. At
the same time, while determining the credit worthiness and
repayment capacity of the prospective borrower, banks/DFIs shall
ensure that the total monthly amortization payments of consumer
loans, inclusive of housing loan, should not exceed 50% of the net
disposable income of the prospective borrower.
• The bank should not allow housing finance for the purchase of land
but can extend finance for the purchase of land and construction on
it.
• The bank may allow housing finance for construction of houses
against land owned by their customers
Maximum Per Party Limit
UBL
Loan Amount
Product Range
Minimum (PKR Million)
Maximum(PKR Million)
Purchase
0.5
30
Home Equity
0.5
10
Build
0.5
30
Age
Salaried
SEP/SEB
• Min- 23
• Max - 60 or retirement age (max up to
65 yrs)
• Min- 25
• Max - 65
Co-Borrower
(income
clubbing)
• Same as for primary borrower
• Same as for primary borrower
Co-Borrower
(income not
clubbed)
• Min- 18
• Max – 70
Income & Employment
Requirement
Salaried
SEP/SEB
PKR 50,000 per month
net salary
PKR 50,000 per month
2 years of work experience net income
3 years in business
Types of Housing Finance
• Buying a Home
– Loan for Purchase of a constructed residential property like house,
duplex, apartment and townhouse, where the said property can be
mortgaged with the bank. With a maximum financing limit of 85% you
can easily buy a house or apartment that best fits your requirements\
• Building a Home
– Building a Home is loan for construction of home over a residential
plot. The financing will be done in tranches. Customer provides the
detailed BOQ (Bill of Quantity) and approved building plan for the
construction. The customer, together with his/her architect and the
bank’s approved appraiser, will prepare the BOQ.
Types of Housing Finance
• Home Equity - Renovation
– Home equity loan is against residential property (as mentioned in “Home
Purchase’), which the borrower already owns, for the purpose of making
improvements in the property.
• Land Plus Construction
– Land + Construction loan is for Purchase of land and subsequent
construction. The financing is done in 5 trenches (1st trench for purchase
of land and subsequent 4 trenches for construction as per BOQ). The
customer has to start construction within 6 months of purchase of land.
• Balance Transfer Facility
– Balance transfer is for financing of Mortgage taken out from other Banks
UBL Address Variants
BUY-A-HOME.
• Loans for
purchase of
residential ready
property for the
purpose of selfoccupation by the
borrower
HOME
EQUITY
BUILD-AHOME
• Loans against
owner/non
owner-occupied
residential
property for home
renovation
• Loans against
residential Land
for the purpose of
constructing a
house
REGULATION R-16 (Loan-To-Value)
The housing finance facility shall be provided at a maximum debt-equity ratio of
85:15.
BUY-AHOME
HOME
EQUITY
BUILD-AHOME
• up to 10 MM – 70%
• 10 MM ≤ 20 MM– 65%
• 10 MM ≤ 20 MM– 60%
• up to 10 MM – 30%
• up to 10 MM – 70%
• 10 MM ≤ 20 MM– 65%
• 10 MM ≤ 20 MM– 60%
REGULATION R-17
As per SBP PR: Banks/DFIs may extend mortgage loans for housing upto any tenure
defined in the bank’s/DFI’s duly approved credit policy and keeping in view the
maturities profile of their assets & liabilities
UBL
Loan Tenure (Years)
Product Range
Minimum
Maximum
Purchase
3
20
Home Equity
3
20
Build
3
20
REGULATION R-18
• The house financed by the bank/DFI shall be mortgaged in
bank’s/DFI’s favour by way of equitable or registered mortgage.
• Registered Mortgage:
– In registered mortgage (RM), the mortgagor binds himself to repay the mortgage
money on a certain date and transfers the mortgaged property absolutely to the
mortgagee but with the condition that it will re-transfer it to the mortgagor upon
the payment of mortgage money as agreed. The mortgagee acquires the right to
sell but only where mortgagor defaults in repayment of the loan.
• Equitable Mortgage:
– Being the most common and generally accepted, equitable mortgage (EM) is
completed by deposit of title deed of the Property. EM also gives the right to sell
to the creditor upon default by the borrower but only after obtaining permission
of the court. The deposit of title deed is documented by means of a Memorandum
of Deposit of Title Deeds [MODTD].
REGULATION R-19
• Banks/DFIs shall either engage professional expertise or
arrange sufficient training for their concerned officials to
evaluate the property, assess the genuineness and
integrity of the title documents, etc.
• PBA approved companies on penal or sufficient training
for internal staff looking after the above tasks
REGULATION R-20
• The bank’s/DFI’s management should put in place a mechanism to
monitor conditions in the real estate market (or other product
market) at least on quarterly basis to ensure that its policies are
aligned to current market conditions.
REGULATION R-21
• Banks are encouraged to develop floating rate products
for extending housing finance, thereby managing interest
rate risk to avoid its adverse effects.
Salaried
• One year KIBOR Ask side + 3.5%
SEP/SEB
• One year KIBOR Ask side + 4.5%
REGULATION R-21 (Classification)
Category
Determinant
Provisions
Substandard
Overdue by 90
days or more
25% provision of the difference form the outstanding
principal balance less the Forced Sales Value of
mortgage properties to the extent of 75% of such FSV
Doubtful
Overdue by
180 days or
more
75% provision of the difference form the outstanding
principal balance less the Forced Sales Value of
mortgage properties to the extent of 50% of such FSV
Loss
Overdue by
one year or
more
100% provision of the difference form the outstanding
principal balance less the Forced Sales Value of
mortgage properties to the extent of 75% for first year;
60% for second year; 45% for third year; 30% for
fourth year and 20% for fifth year
Target Cities
Karachi
Lahore
Islamabad/
Rawalpindi
Faisalabad
Issues in Housing Finance
– Undocumented Economy
– Our Legal Framework affecting Foreclosure of loan,
takes long time to initiate legal prosecution against
delinquent borrowers.
– Transfer, Tenancy, Rent Control: it refers to the weak
property transfer process in all over in Pakistan
including in Urban or Rural areas both.
– Rationalization of Transaction Costs: It varies with area
and concerned allotment authorities.
Issues in Housing Finance
– Integrated land registration information system
– Financing on Housing project: there is no mechanism of
project financing because of the potential threat of land
grabbing mafias and political interventions.
– Supply of land for affordable housing: availability of land
for affordable housing is difficult
– Structuring and streamlining Large Scale Developer’s
Finance
Issues in Housing Finance
– Facilitate low-cost/low-income housing models and
products
– Facilitate Real Estate Investment Trusts (REITs)
– Provision of long term funding for housing loans
– Housing Observatory (housing market information system)
– Capacity building of the mortgage banking industry in
Pakistan
Process Flow
Customer
Branch Sales
Verifications
Login
RHQ
Appraisal
Recommendation
Legal
Underwriting
Decision
Consumer Operations
for Booking
Charges
Type of Charge
Amount (Rs.)
Processing Charges
5,000
Legal Charges
4,000
Appraisal Charges
4,000
Late Fee per Installment
1,000
Property Insurance
Free @ 0.049%
Life Insurance
Optional
Prepayment Penalty on
Outstanding Principal
8% in year 1
5% in year 2
3% from year 3 and onwards
Documentation
• General
–Copy of CNIC
–Two recent photographs
(also for Co-borrower whether income
clubbing or not)
Documentation
•Specific
Salaried (known
companies)
Current salary slip
Employment certificate
Salaried (unknown
companies)
Bank statement (for the last 24 months)
Tax document (for the last 24 months)
SEB/SEP
Bank statement for the last 12 months.
Last 3 years (2 years for existing customers ) of tax
assessment or registered partnership deed or
Memorandum of article of association and last three
years Form A/29 or Proprietorship Letter from Bank.
Verifications
• General
Data Check, NADRA, Verisys, ECIB, SECP (where required),
FBR, FRMU, Online Telephone verification is mandatory for all
mentioned segments
Verifications / Reports
• Specific (Salaried)
–
–
–
–
–
–
–
–
Internal (telephone) verifications conducted for home
Internal (telephone) verifications conducted for office
Physical verifications conducted for office & home
Legal Opinion Taken from lawyers
Property Appraisal conducted from agency
Collateral VA conducted
Market Check variance with appraisal report
Housing price Grid variance with appraisal report
Verifications / Reports
• Specific (Businessmen)
–
–
–
–
–
–
–
–
Internal (telephone) verifications conducted for home
Internal (telephone) verifications conducted for Business
Physical verifications conducted for office / Business & home
Legal Opinion Taken from lawyers
Property Appraisal conducted from agency
Collateral VA conducted
Market Check variance with appraisal report
Housing price Grid variance with appraisal report
Income Estimation / Calculation
• For salaried segment income is calculated through salary slip and
bank statement (for unknown companies)
• For SEB / SEP Class
– Income is calculated through bank statement of the customer as
per the existing income calculation methodology. Clubbing of
income through 2 bank statements is allowed.
Thank You