Govt mulls allowing commercial banks to take over mortgaged houses 90 days after default

ISLAMABAD: The government on Thursday decided in principle to grant commercial banks significant powers to take over mortgaged houses in case of default after a cumulative notice period of 90 days, in a move aimed at encouraging lending to the housing sector.

The proposed foreclosure law to amend “The Financial Institutions (Recovery of Finances) Ordinance, 2001”, currently under review by the National Assembly’s Standing Committee on Finance and Revenue, provides that where a customer defaults on payment of mortgage dues, the financial institution may issue three notices of 30 days each, “demanding payment of the outstanding mortgage amount”.

“In case of default in payment by a customer after service of the final (third) notice, the financial institution may proceed with the sale of the housing unit, provided that all notices have been duly served upon the mortgagor, who has remained in default of payment of mortgage dues or any part thereof.”

The Standing Committee on Finance, which held a meeting in Islamabad on Thursday and was presided over by former finance minister Syed Naveed Qamar, raised serious reservations over the drastic conditions apparently favouring commercial banks over customers.

The committee “expressed concerns over provisions that could potentially grant banks excessive powers in the foreclosure process,” it said in a written statement at the conclusion of the meeting.

Members of the panel emphasised that while an effective legal framework was essential to promote mortgage financing and safeguard the interests of lending institutions, adequate legal protections and due process must also be ensured to protect borrowers from arbitrary or unfair actions.

After detailed deliberations, the committee deferred the bill to its next meeting, directing the secretary of the Ministry of Housing and Works to circulate the revised draft of the bill to all members for further review and input before its finalisation in the next meeting.

Qamar said that affordable housing finance must genuinely serve deserving low-income families through transparent, accountable and inclusive mechanisms, and stressed the urgent need for robust foreclosure and recovery laws to strengthen Pakistan’s underdeveloped mortgage finance sector and enhance the confidence of financial institutions in expanding long-term housing finance.

The federal secretaries of finance, housing and works, and law and justice, also briefed the committee members on the Prime Minister Apna Ghar Programme (PM-AGP), its implementation framework, and proposed reforms relating to housing finance and foreclosure laws.

The secretary of the housing ministry, Captain (retd) Mehmood Ahmad, told the meeting that the PM-AGP was a subsidised housing finance initiative aimed at enabling low and middle-income families to own homes, while promoting economic activity and revitalising the construction sector.

Approved in August 2025 and revised in March 2026, the scheme offers financing of up to Rs10 million for first-time homeowners at a fixed markup rate of 5pc, repayable over 20 years with a 90:10 financing ratio.

As of April 30, 2026, a total of 25,304 applications had been received, of which 8,990 applications involving Rs37.154bn were approved, while Rs5.071bn had been disbursed to 1,845 beneficiaries.

The meeting was also informed that Pakistan’s housing finance sector remained underdeveloped, with mortgage financing contributing only 0.3 per cent to the GDP and 0.56pc to total private sector credit.

The government had, therefore, set a target of financing 500,000 housing units over the next four years, requiring an estimated Rs3.2tr in financing.

Responding to a question, Finance Secretary Imdadullah Bosal said the government did not have Rs3.2tr worth of fiscal space, but given the prime minister’s priority initiative, the funding would have to be arranged through various fiscal adjustments. He said there was also a need to review all subsidy schemes, adding that the Public Sector Development Programme may have to be curtailed further if necessary.

The government team emphasised that reforms in foreclosure and recovery laws were essential to reduce risks for banks, enhance investor confidence and ensure sustainable growth of the mortgage finance sector.

The committee observed that Pakistan’s housing finance sector remained significantly underdeveloped, requiring structural reforms, improved foreclosure and recovery laws and a more conducive regulatory environment to encourage banks and financial institutions to expand mortgage lending.

The panel was unanimous in expressing concerns regarding the limited outreach of housing finance facilities to low-income and marginalised communities, particularly in rural and underserved areas.

It also questioned the preparedness and institutional capacity of banks and financial institutions to achieve the ambitious target of financing 500,000 housing units within four years, given the presently underdeveloped mortgage finance ecosystem in the country.

The committee recommended that the government and the State Bank of Pakistan (SBP) introduce simplified financing procedures, flexible eligibility criteria, and enhanced subsidy support for low-income and informal-sector households in order to improve accessibility and affordability of the scheme.

The law secretary told the panel that the proposed amendments to “The Financial Institutions (Recovery of Finance) Amendment Act, 2026” introduced several structural changes in light of stakeholders’ feedback. These included the insertion of a new Section 15A, specifically dealing with housing finance, instead of applying the provisions broadly to all mortgage deeds.

He said that the revised draft provided extended notice periods in cases of mortgage default, with the first three notices now carrying a 30-day period each, amounting to a total of 90 days before further proceedings. In addition, a new proviso has been included enabling financial institutions, at any stage prior to the sale of mortgaged property, to reschedule, restructure, or settle outstanding mortgage liabilities.

The law secretary also said the proposed changes provided for timely recovery, fair treatment of mortgagors and effective enforcement of secured interests, while ensuring efficiency and transparency in the recovery process.