MUMBAI, India – The National Housing Bank (NHB) has introduced significant revisions to its home loan refinancing guidelines, particularly impacting properties currently under construction. In a proactive measure designed to prevent the misuse of home loan facilities, the regulatory body has declared that refinancing will only be extended to properties where less than fifty percent of the construction work is completed at the point of the initial loan disbursement.
This updated directive, formally communicated to home financiers, specifically addresses loans obtained for building on plots or constructing homes on self-owned land. The NHB’s official order clarifies, “For loans provided by Housing Finance Companies (HFCs) to individuals for ongoing construction, NHB refinancing will be available exclusively for projects where the construction progress does not exceed fifty percent at the time of the first loan tranche disbursement.”
Industry insights suggest that this regulatory adjustment stems from an observed trend: some borrowers were seeking home loans after the construction phase was already complete. This practice effectively converted the home loan into a mechanism for monetizing an already finished asset, rather than funding its development. The NHB has now classified such cases as “loans against property” (LAP) instead of standard home loans. Despite advocacy from HFCs to permit refinancing for these newly built homes, the NHB has maintained its stance. As one housing finance company executive noted, “The NHB’s perspective is that once a house is fully constructed, extending a home loan essentially serves to liquidate the asset’s value.”
To ensure adherence to the new norms, the NHB has also mandated that the construction status must be meticulously verified through a technical evaluation report before the initial loan installment is released. HFCs have received explicit instructions to ensure that only eligible loans, conforming to these criteria, are presented for NHB refinancing.
The introduction of these more stringent regulations has prompted concerns among several HFCs, who fear that the revised rules could disproportionately impact low-income borrowers. These individuals frequently begin construction on their own land, often relying on informal credit from vendors or family. They typically approach HFCs for formal loans only as their homes near completion, primarily to settle outstanding debts. HFCs argue that such applicants should continue to qualify under the home loan category, highlighting a potential tension between robust regulation and equitable access to credit.
This recent regulatory enhancement forms part of the NHB’s continuous efforts to bolster oversight and enforce stricter compliance within the housing finance sector. In December of the previous year, the NHB required all HFCs to submit non-performing asset (NPA) data on the first day of each month. This measure was implemented after the regulator identified that many lenders were prolonging the recording of collections from the prior month well into the subsequent week, thus affecting the accuracy of financial reporting.
Further underscoring its commitment to consumer protection, in March, the NHB took additional action, issuing a reprimand to HFCs regarding the inappropriate sale of insurance policies bundled with home loans. The NHB has since directed HFCs to immediately cease offering insurance products without a clear and comprehensive disclosure of all terms and conditions to borrowers.
As of September 2024, the total outstanding home loans amounted to ₹33.53 lakh crore, with housing finance companies contributing a significant ₹6.25 lakh crore. Consequently, the NHB’s updated regulations are poised to have a substantial impact across the entire housing finance landscape.
