The regulator has introduced stricter guidelines for refinancing home loans on under-construction properties. In an order to home financiers, it stated that refinance will now be provided only for loans where less than half of the construction is complete at the time of the first disbursement. This rule specifically applies to loans taken for construction on plots or for building homes on self-owned land.

“In cases where home financiers extend loans for ongoing construction, refinance will be available only for loans where not more than one-half of the construction has been completed at the time of disbursement of the first tranche,” the order said.

The regulator has also mandated that the stage of construction be verified through a technical evaluation report when the first tranche is disbursed, and financiers must ensure only eligible loans are flagged for refinance.

Sources said the change was prompted by instances where borrowers applied for home loans after construction was already complete, effectively using the loan to monetise finished property. Such cases should instead be treated as loans against property (LAP). Out of the outstanding home loans of ?33.53 lakh crore at the end of September 2024, housing finance companies held a share of ?6.25 lakh crore.

The regulator has been tightening oversight and enforcing stricter compliance norms. In December last year, all housing financiers were mandated to report non-performing asset (NPA) data on the first day of each month after it was observed that many lenders continued recording collections for the previous month into the following week.

In March, further action was taken against financiers for mis-selling insurance policies bundled with home loans, directing them to immediately stop selling insurance products without clearly disclosing terms and conditions to borrowers.

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