One of the major aims of the current Pakistani government is to resolve the housing crises in the country. It plans to offer easy home solutions specifically catered to the underprivileged segment of the public. And as it moves forwards with schemes like the Naya Pakistan Housing Programme (NPHP), many Pakistanis still seem to be keen on making do with the traditional home loans option to finance their residential goals.
Like in the rest of the world (with the U.S being a notable case of much mortgage prequalification), the borrower must meet certain terms and conditions for being considered for the grant of a home loan in Pakistan. Different institutions in the country, like banks and government-backed departments, offer these time-bound provisions. As a result, their terms and conditions can vary.
A lot of these financial institutions market their loans as being the ‘easiest to get’–with the promise that the borrower would face the minimum hassle. But is this really true?
On a practical footing, once borrowers get into the nitty-gritty of the lender’s terms and conditions, they find plenty of these stipulations quite bothersome–if not infuriating!
Here is a brief overview of the terms and conditions that irk an average Pakistani, when he (or she) decides to avail a home loan:
Volatile Interest Rates
According to the latest report shared by the State Bank of Pakistan (SBP), volatile interest rates comprises one of the key issues that the country faces on the demand side of the housing finance sector. Also, the majority of the Pakistani populace tends to shy away from interest-backed loans.
Islam, which is the predominant religion in the country, does not permit such transactions.
To counteract this problem, some financial institutions have introduced Islamic home loan products. But a number of people are not satisfied with these either. They believe that these loans are only ‘apparently’ interest-free (as part of an elaborate marketing ploy)–an attempt by scheming banking professional to obtain money under different titles.
Application Processes
One of the most common complaints voiced by potential borrowers concerns the complexity of the typical home loan application process. Also, there happens to be a lot of disparity between the processes (application form types, bureaucratic channels to go through, etc.) set in place by different financial institutions. This creates confusion, leaving many hesitant, and oftentimes unable, to access the loan facilities.
The SBP is now planning to standardise the loan application form of banks and development finance institutions (DFIs), to provide some semblance of a uniform filing procedure. The authority wants to make low-cost housing finance an attainable possibility for the wider public.
Overhead Charges
In addition to the hefty loan repayments and interest rates, borrowers also have to incur certain overhead charges. Bank processing fees figures as the most common of these ‘irritants’.
When a person applies for a home loan, the bank will charge a designated fee to initiate the application process. This is known as the processing fee. Some banks don’t charge it, but there are other many miscellaneous charges which borrowers need to pay.
For example, the bank may require an amount for approving the documents submitted by the borrower, as well as for the issuance of the Electronic Credit Information Bureau (ECIB) report.
Obviously, these extra fee deposits only make the loan-acquiring process more expensive, as well as tedious.
Credit Checks
It is largely understandable why banks and DFIs take pains to look deeply into a potential borrower’s credit history, in order to determine whether he is reasonably capable of paying the loan back. In Pakistan, a large number of people remain deprived of home loan facilities because of this issue, and at least until they can improve their credit rating.
In many countries, several financial institutions–often private lenders–offer options for people with poor credit histories. In Pakistan, however, such offers are generally unheard of. And as far as private lenders are concerned, they are either not trustable, or charge even higher interest rates (thereby beating the incentive).
Faced against this scenario, many Pakistanis opine that the government should look into establishing special DFIs to cater to the country’s low-credit segment. Also, there should be solid awareness campaigns and resources in place to help people improve their credit profiles.
Income Levels
When a person applies for a home loan, the financial institution concerned looks for several things, including the requirement of a permanent source of income, as well as the level of income. The borrower, obviously, needs to have a constant source of income to pay back the loan in instalments over its scheduled tenure. But the condition of only offering home loans to people who earn above a certain level of monetary compensation needs reconsideration.
According to most of the experts on the ground, this revision is also needed to further popularise low-cost house financing in the country. Further, they reason that the government should help local financial institutions in developing home loan options for those who earn less. One commonly aired suggestion for doing this is to extend the loans’ tenures, so that borrowers are only required to pay smaller instalment amounts. Also, irrationally devised interest rates should not accompany this provision.-
As of December 2018, Pakistan’s outstanding housing finance figure (of the total allocated by the government for the sector) has been recorded at PKR 92.4 billion; with this figure calculated after combining the housing finance volumes of local banks and the House Building Finance Company (HBFCL). This statistic proves that a large section of the local population does not have access to home loan facilities, probably because they are unable to afford them.
On a summing-up note, there are several issues with the country’s home financing sector, and a comprehensive strategy geared towards taking some immediate remedial measures needs to be undertaken to improve it. Many local private financing companies, in an attempt to ease consumers’ access (and palatability) to home loans, have launched dedicated website platforms. Several of these sites, many of which are primarily concerned with listing real estate, offer nifty home loan calculator features, which help to significantly break down the figures.
But on an overall footing, this public quandary needs to be tackled head-on by the state; which can play its part by making the terms and conditions of home loans more public-friendly – for starters.