The change was triggered by instances where borrowers were applying for home loans after the construction was already complete, effectively using the loan to monetize the finished property. NHB clarified that such cases should be treated as loans against property (LAP) rather than home loans.
The National Housing Bank (NHB) has introduced stricter guidelines for refinancing home loans in under-construction properties. In an order to home financiers, the NHB said it would now provide refinance only for loans where less than half the construction is complete during the first disbursement.
This rule specifically applies to loans taken for construction on plots or for building homes on self-owned land, said the order.
"In cases where HFCs extend loans to individuals for ongoing construction, refinance from NHB will be available only in respect of loans where not more than one-half of the construction has been completed at the time of disbursement of first tranche of the loan by the HFC," said the NHB order.
NHB has also mandated that the stage of construction be clearly verified through a technical evaluation report when the first tranche of the loan is disbursed. HFCs have been instructed to ensure only eligible loans are flagged for NHB refinance.
Despite requests from HFCs to allow such newly built homes to qualify for home loan refinance, NHB has rejected the proposal. "NHB felt that once a house is already constructed, disbursing a home loan amounts to monetizing the asset," said the chief executive of a housing finance company.
Experts are of the view that the new rule could affect low-income borrowers, particularly those who start construction on self-owned land using informal credit from vendors or family. Often, these borrowers' approach HFCs for loans only after construction is nearly complete, primarily to repay those debts. HFCs believe such applicants should still qualify for funding under the home loan category.
