Tier 1 Home Finance Subsidy Program: corrected markup rates down

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KARACHI – The State Bank of Pakistan (SBP) has revised the consumer prices (markup rates) for Tier-1 of the federal government’s markup subsidy program for housing finance.

In order to support the housing and construction sector, the federal government had initiated a markup subsidy program to offer the masses cheaper housing financing options and thus promote home ownership. In light of feedback received from various stakeholders, the Government of Pakistan (GoP) has decided to revise the pricing (mark-up rates and subsidy payment period) under Tier 1 of the Mark-up Subsidy Scheme for Housing Finance, which is used to fund housing units in Naya Pakistan Housing and Development Authority (NPHDA) projects.

Previously, the customer rate for sub-Tier 1 home loans was 3 percent for the first five years. Now that pricing has reduced to 2 percent for the one-year to five-year term. Under the new guidelines, the customer rate on home loans for the next five years (6 to 10 years) has been set at 4 percent, compared to the previous rate of 5 percent. In addition, a new platter has been introduced and customer rates for 11- to 15-year home loans are 5 percent. However, for housing loans with a term of more than 15 years, the market, ie bank prices for the period of more than 15 years apply. Bank rates for the Tier 1 home loans are KIBOR + 250 basis points for all maturities.

The SBP has asked all banks, microfinance banks and DFIs that the revision of the government’s Mark-up Subsidy Scheme for Housing Finance takes effect immediately. However, other features of the scheme remain unchanged.

Home finance: SBP raises banks’ binding target

In accordance with the requirements of the federal government, the Landesbank has taken a number of measures to support the housing and financial sector by providing promotional loans. Bank financing for housing and construction saw an unprecedented 85 percent growth in calendar year 2021 (CY21), supported by the Government of Pakistan’s special markup subsidy program “Mera Pakistan Mera Ghar”.

Overall, outstanding loans from banks for housing and construction increased by Rs 163 crore, from Rs 192 crore in CY20 to Rs 355 crore at the end of CY21. In addition, the SBP recently announced an increase in the mandatory target for housing and construction financing from 5 percent to 7 percent of its domestic private sector lending. With regard to the promotion of housing and building construction in Pakistan, the State Bank decided in July 2020 to recommend binding targets to banks and accordingly each bank was requested to ensure that the financing of housing and building construction (Residential and Non-residential) to account for at least 5 percent of their domestic private sector lending by December 2021.

In January, however, the SBP on Friday advised banks to increase financing for housing and building construction (residential and non-residential) to at least 7 percent of their respective domestic private sector advances by December 2022.

Copyright Business Recorder, 2022

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