Third-party guarantee allowed for home loans

KARACHI: The State Bank of Pakistan (SBP) on Monday allowed banks to accept third-party guarantee for lending low-cost housing loans under the government’s subsidised scheme.

Currently applicants are facing difficulties in obtaining housing finance, especially for low-cost housing, as banks are reluctant to take the risk of the house not being completed or documentation completion. The completion of a housing unit and mortgage creation takes time.

In order to address this issue, the SBP has allowed acceptance of a third-party guarantee for this period up to a maximum of one year, said the circular.

With the aim to facilitate the banks in extending low-cost housing finance, the SBP has allowed them to accept personal guarantee of a third party until the housing unit is completed and the mortgage is perfected.

“The guarantee will remain valid for a maximum period of one year,” said the SBP. This step will help promote home ownership of potential borrowers wishing to avail housing finance under Government Markup Subsidy Scheme issued by SBP on Oct 12, 2020.

“Third party guarantee will cover the period from the disbursement of loan to the time when construction is completed and risk coverage becomes available by Pakistan Mortgage Refinance Company,” said the SBP.

Acceptance of third-party personal guarantee will provide additional comfort to banks for extending low-cost housing finance, an area in which banks have keen interest for its business potential, it added.