A Brief Guide On Mortgage Financing In Pakistan
Pakistan’s housing shortage has reached up to 10 million units and growing with an expectation of 0.7 million units in 2016. This is something very crucial and needs to resolve immediately. The reason behind the housing shortage is the lack of mortgaging finance and lower level of income.
What Is Mortgage Finance?
A mortgage is a written document that provides rights to a lender in real property as a security for the loan.
So, mortgage finance is the money that is lent by banks or other financial institutions in the form of mortgages. This form of loan is given to qualified applicants for the acquisition of commercial property or home. In this case, the borrower is the owner and the lender have a legal right to that property.
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Banks Offering Mortgage Finance:
Mortgage finance is the one and only sector in Pakistan which is growing very slowly. Facility of mortgage finance is providing by almost all banks including HBFC which only provides home loans. Different banks provide different financing options to its customers based on their purposes and the maximum amount for constructing a house is 75% of the property’s value.
The problem remains there with the low-income groups and for self-employed people. When it comes to lending, Banks used to prefer a salaried class of persons to avoid risk. As the risk of default is lower with salaried class. Banks feel waver to offer a mortgage to lower class due to the lack of constitution of laws.
Furthermore, the risk attached to these type of loans is that they tied up the bank’s funds capital for the long period of time ranging from 3 to 30 years.
Apart from banks, there are reservations on the consumer’s part too. Culturally Pakistan is a collectivist society and as the youngsters can’t afford to build own houses they have to stay in a joint family system.
People are very anxious about putting down their property as a security because they are scared of losing their property in case of default. That’s why they used to prefer renting houses rather than building their own.
Another major issue is the suspicion of haram activity and disbelief on banking system by paying interest on loan which is prohibited from the Islamic point of view. Banking systems have introduced the facility of Islamic mortgage financing like Standard Chartered’s Sadiq Home Finance Scheme. The interest rates charged by banks are around 10-11% and these rates are not affordable for the lower class.
World Bank’s Initiative To Promote Housing Finance:
World bank has been emerging a house financing plan for Pakistan to help in dealing with housing shortage crisis. The World Bank will help by providing funds to other banks through PMRC (Pakistan Mortgage Refinancing Company) in order to increase the lending volume specifically to lower income group. The ultimate target of World bank is to expand the housing finance sector to make it profitable for the banks along with easy terms of the loan.
All the things considered, the prospect for mortgage finance is ultimately improving the country with World Bank, SBP, and PMRC by introducing the new rules and regulations. In this way, the World bank will expand the sector and the market will become more practical in the near future.
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December 22, 2017 AT 10:47 AM