Govt Decides to Promote Housing Finance With New Rule That House Buyers Won’t Like

The government has decided in principle to allow commercial banks to take possession of mortgaged houses in cases of loan default after a cumulative notice period of 90 days, as it seeks to encourage lending to Pakistan’s housing sector.

The proposed legal change is part of amendments to the Financial Institutions (Recovery of Finances) Ordinance, 2001, which are currently under review by the National Assembly’s Standing Committee on Finance and Revenue.

Under the draft foreclosure framework, a financial institution would be allowed to issue three separate notices of 30 days each to a borrower who defaults on mortgage payments. If the customer fails to clear the outstanding dues even after the final notice, the bank may proceed with the sale of the housing unit, provided all notices have been properly served.

The matter came up during a meeting of the Standing Committee on Finance held in Islamabad on Thursday under the chairmanship of Syed Naveed Qamar. Committee members raised serious concerns over provisions they said could give banks excessive powers in the foreclosure process at the expense of borrowers.

In its written statement after the meeting, the committee said members had expressed reservations over clauses that could potentially tilt the balance too heavily in favour of financial institutions. The panel stressed that while a stronger legal framework was needed to expand mortgage financing and protect lenders, borrowers must also be safeguarded against arbitrary or unfair action.

After a detailed discussion, the committee deferred the bill to its next meeting and directed the secretary of the Ministry of Housing and Works to circulate a revised draft among members for further review before finalisation.

Qamar said affordable housing finance must genuinely benefit deserving low-income families through transparent, accountable, and inclusive mechanisms. He also underlined the need for effective foreclosure and recovery laws to strengthen Pakistan’s weak mortgage finance sector and improve the confidence of banks in expanding long-term housing lending.

During the meeting, the federal secretaries of finance, housing and works, and law and justice briefed the committee on the Prime Minister Apna Ghar Programme, its implementation framework, and proposed reforms related to housing finance and foreclosure laws.

Housing Secretary Captain (retd) Mehmood Ahmad told the committee that the Prime Minister Apna Ghar Programme is a subsidised housing finance initiative aimed at helping low and middle-income families purchase homes while also stimulating economic activity and supporting the construction sector.

Approved in August 2025 and revised in March 2026, the scheme offers financing of up to Rs. 10 million for first-time homeowners at a fixed markup rate of 5 percent for up to 20 years, with a 90:10 financing ratio.

As of April 30, 2026, the programme had received 25,304 applications. Of these, 8,990 applications worth Rs. 37.154 billion had been approved, while Rs. 5.071 billion had been disbursed to 1,845 beneficiaries.

Officials informed the committee that Pakistan’s housing finance sector remains severely underdeveloped, with mortgage financing accounting for only 0.3 percent of GDP and 0.56 percent of total private sector credit.

The government has set a target of financing 500,000 housing units over the next four years, which would require an estimated Rs3.2 trillion in financing.

Responding to questions from lawmakers, Finance Secretary Imdadullah Bosal acknowledged that the government does not currently have fiscal space of Rs. 3.2 trillion. He said the funding would need to be arranged through fiscal adjustments, given the prime minister’s priority focus on the programme. He added that subsidy schemes may need to be reviewed and the Public Sector Development Programme could be reduced further if required.

Government officials argued that reforms in foreclosure and recovery laws are necessary to reduce the risks faced by banks, strengthen investor confidence, and support sustainable growth in the mortgage finance market.

However, the committee observed that Pakistan’s housing finance ecosystem remains too weak to support such ambitious targets without broader structural reforms, better recovery mechanisms, and a more supportive regulatory framework.

Members were also unanimous in expressing concern over the limited reach of housing finance for low-income and marginalised groups, especially in rural and underserved areas. The panel questioned whether banks and financial institutions currently have the institutional readiness to finance 500,000 housing units within four years.

The committee recommended that the government and the State Bank of Pakistan introduce simpler financing procedures, more flexible eligibility criteria, and stronger subsidy support for low-income and informal-sector households to improve access to housing finance.

The law secretary told lawmakers that the proposed amendments to the Financial Institutions (Recovery of Finance) Amendment Act, 2026 include several structural changes based on stakeholder feedback. These include the insertion of a new Section 15A specifically for housing finance instead of applying the provisions broadly to all mortgage deeds.

He said the revised draft extends the notice period in mortgage default cases to three notices of 30 days each, giving borrowers a total of 90 days before further action can be taken. He added that a new provision also allows financial institutions, at any time before the sale of a mortgaged property, to reschedule, restructure, or settle the outstanding mortgage liability.

According to the law ministry, the proposed amendments are designed to enable timely recovery, fair treatment of mortgagors, and transparent enforcement of secured interests while improving efficiency in the recovery process.

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