Mortgage finance is a loan borrowed particularly for property buying. It involves series of long-standing payments with fixed or variable interest rates set while borrowing a loan. The house loans already required a long-term commitment, and mainly people who can assure their future financial stability, having high paid jobs could only think of taking such kind of loan.
Talking about Pakistan, it is one of the developing countries that is already striving for a stable economy where the inflation rate is getting higher every day, highly paid jobs are few, and the literacy rate is low. People here think hundred times before buying even a personal vehicle on the loan that needs to be returned with quite a substantial amount of interest. A place where people find it hard to meet their everyday expenses, buying something on loan is just about putting an extra burden on their shoulders.
Moreover, loan banking has been introduced to Pakistan recently, and many people are until now getting a clear idea of it. Previously, banks in Pakistan focused more on corporate sectors, they are the ones, taking all the benefits of loan services. it was about the mid-90s when some international banks introduced credit card facilities in Pakistan. After this, the banking sector starts coming with several other benefits to Pakistan. Still, many people hesitate to take such risks because of the level of knowledge and understanding they have regarding the banking sectors, especially mortgage and other loan facilities. Therefore, this is one of the reasons that mortgage financing in Pakistan is not so common.
The problem is when middle or lower-class people think about purchasing any property that is out of their reach, and their disposable income is not enough to take such risks as a loan from banks. From 2008 to 2013, there was a huge declining trend in housing finance because of the preference of banks towards risk-free financing. Interest rates at this time were quite high and it affected many segments of the society.
Another concern of many property buyers is the hidden charges that are being revealed when a buyer is about to complete all the dues and obtain ownership of the house. Many property dealers never show a clear picture of the actual charges. So, the invasion of government is necessary for this. Nevertheless, banking sectors nowadays are understanding the requirements and market nature in Pakistan. This is the reason they are expanding the horizons and planning to cover broader markets for mortgage financing.
According to the sources, the construction of new houses is only 0.6 million that is low for meeting the new demands. Comparing the demand requirement of 10 million houses for the next 20 years, the construction of 1.1million houses should take place. So, this states that the supply is already less and demand is increasing, so in this case, it will hit the prices directly, as per the economics rule and logic. Therefore, the real problem is to accelerate the high growth rate in the coming years. If we see, currently, the percentage of people opting for mortgage finance is increasing but not sufficiently. To increase the interest of people towards mortgage financing the government has to align with the banking industry to come up with reasonable solutions that would benefit both the economy and people.
The other point of view is, a mortgage loan borrowing is for at least 5 to 10 years. For the banking industry, this tenure is substantially long and does not create a sustainable situation as the mortgage market grows to its potential. Hence, it shows that in Pakistan mortgage loan is not only a burden for an individual, but also for the banking sector.
However, the good news is the future planning of the government of Pakistan to encourage mortgage financing at lower interest rates. Low-cost housing finance is one of the initiatives that the government is planning to introduce in the market. Even to promote this, the tax rates have been reduced to 20 percent of 39 percent. Further, it is planning to reduce it to 10%. Also, several benefits are about to come under the scheme of the “Naya Pakistan Housing Programme (NPHP)”, that will cater to the needs of middle or low-income groups.