The National Housing Bank (NHB) has introduced stricter guidelines for refinancing home loans on under-construction properties. In an order to home financiers, NHB stated that it will now provide refinance 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 to individuals for ongoing construction, refinance from NHB 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.

NHB has also mandated that the stage of construction be verified through a technical evaluation report when the first tranche of the loan is disbursed. Financiers have been instructed to ensure that only eligible loans are flagged for NHB refinance.

Many financiers argue that the new rule could affect low-income borrowers, particularly those who begin construction on self-owned land using informal credit from vendors or family. These borrowers often approach financiers only after construction is nearly complete, primarily to repay those debts. Financiers believe such applicants should still qualify for funding under the home loan category.

In March, the regulator also reprimanded home 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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