What the circular changes

The State Bank of Pakistan, through SH&SFD Circular No. 04 of 2026 dated 18 August 2026, has comprehensively revised the Prudential Regulations for Housing Finance. The new framework applies with immediate effect to all banks and development finance institutions and expressly supersedes IH&SMEFD Circular Letter No. 8 of 2019, IH&SMEFD Circular No. 12 of 2020, IH&SMEFD Circular No. 13 of 2020, and IH&SMEFD Circular No. 07 of 2021.

Regulatory ceilings, not individual entitlements

The figures set out in the circular are maximum regulatory limits. No provision requires a bank or DFI to lend up to these ceilings. Each institution retains discretion to apply a shorter tenor, a lower loan-to-value ratio, or a tighter debt-burden threshold based on its own credit policy and the borrower's profile. A 90:10 LTV does not mean every applicant will receive 90 per cent financing, nor does a 30-year ceiling mean every loan will be structured over three decades.

Permitted purposes and the 30-year tenor

Under Regulation HF-1, housing finance may be extended for six purposes: purchase of a house or apartment; construction on an already-owned plot; purchase of a plot with construction; extension or expansion of an existing house; renovation; and installation of renewable-energy solutions in housing units. Regulation HF-4 sets the maximum housing-finance tenor at 30 years and the maximum renewable-energy financing tenor at 10 years.

Loan-to-value and debt-burden ratios

Regulation HF-5 fixes the maximum loan-to-value ratio at 90:10, meaning financing may cover up to 90 per cent of the property value. Regulation HF-6 caps total monthly amortisation payments: covering the proposed housing finance and all other outstanding consumer-financing obligations: at 65 per cent of the borrower's net disposable income. Banks and DFIs must also use Pakistan Banks' Association proxy models, where applicable, to assess informal-income borrowers who lack conventional salary documentation.

Credit checks, valuation and insurance

Regulation HF-3 requires banks and DFIs to obtain the latest credit-information report for each applicant from the SBP's Electronic Credit Information Bureau or a licensed private credit bureau. Regulation HF-8 mandates an external valuation by at least one PBA-panel valuator for financing above Rs10 million; financing up to Rs10 million may be assessed through internal resources. For financing up to Rs5 million, a lien supported by a Green Property Certificate or an equivalent provincial-authority document may serve as security (Regulation HF-7). Regulation HF-10 requires comprehensive insurance or takaful coverage equal to the outstanding exposure, with the nature of coverage, premium rate and charges disclosed to the borrower.

Classification, provisioning and restructuring

The circular introduces a four-tier asset-classification framework: OAEM at 90 days past due, Substandard at 180 days, Doubtful at one year, and Loss at two years. Provisioning is benchmarked against the higher of IFRS-9 Expected Credit Loss or Forced Sale Value-based calculations; the FSV benefit ceases after five years from the date of classification. Rescheduling or restructuring is capped at once per two-year period, with a maximum tenure extension of five years, subject to the overall 30-year ceiling (Regulation HF-13). A non-performing asset may be upgraded only after the borrower pays at least 10 per cent of the rescheduled amount or six instalments under the revised terms, whichever is higher.

What the evidence does not yet establish

The circular does not prescribe markup or profit rates, which remain a matter for individual banks and DFIs. It also does not specify how the 65 per cent debt-burden ratio interacts with existing secured lending beyond consumer finance, nor does it set a deadline by which banks must align their internal policies with the new ceilings.