How to apply for a Housing Loan in Sri Lanka?

How is the Demand for Housing?

The annual demand for housing in Sri Lanka is estimated at a rate of 80,000 to 100,000 units. This number is expected to substantially increase in the future. In addition, there is a growing demand for condominium units in the Western provinces of Sri Lanka from expatriates and Sri Lankans residing abroad.

Who are the Major Players?

State owned institutions play a major role in the housing finance market in Sri Lanka. Traditionally, the housing finance market has concentrated on State funded sources since housing development strategies in Sri Lanka have been mainly initiated through State owned institutions. State owned lending institutions include State Mortgage & Investment Bank (SMIB), Housing Development Finance Corporation (HDFC), National Housing Development Authority (NHDA) and the National Savings Bank (NSB).

What are the purposes where the Loans are granted?

Going beyond standardized housing products, some Banks offer to its customers loans for the improvement of their living conditions. They could get finance to beautify their houses through new furniture, landscaping, Curtaining, air-conditioning etc. As a result, a bare building could be converted into a home by furnishing, landscaping, curtaining and providing many more extra facilities such as hot water, air conditioning, internet connection etc.

Are existing customers benefited more when applying for loans?

Banks also offer loans to existing loan customers, for personal consumption purposes such as education, health, purchase of consumables and motor vehicles.

What are the products bank offer for credit?

Different banks has different products as per the requirement of the customer.

What are the mandatory requirements that should be met by the applicant for a housing loan?

Are all the customers who are in search of a loan eligible?

Who can obtain a housing loan?

If you are …..

 a permanent employee

 an income-tax payer

 employed abroad

 self-employed

 Banks Customers, Sri Lankans of age between the ages of 18-60 with an adequate

repayment capacity with clear DRU and CRIB records.

 Limited liability companies (House constructors for sale)

For what purposes are the loans granted?

“Loans are available for all Housing Needs.”

 To construct or purchase a house

 To purchase a block of land to build a house.

 To complete construction of a new house or for extensions/repairs to an existing house.

 To repay a loan obtained from a recognized financial institution for housing purposes.

Is there a restriction on the amount of the loan?

Loan Amount:

Depend on the repayment capacity of the customer.

Repayment:

 Maximum 25 years with one year grace period in equated installments.

 Maximum age 65 years or the retirement whichever is earlier.

 Grace period up to 5 years with a maximum of 3 intervals.

Security:

 Mortgage over the subject property

Is it necessary to offer a security in order to obtain a housing loan?

Yes. The house/land to be constructed / purchased or the house to be completed/repaired/extended, or another immovable property should be mortgaged to the Bank as a security for your loan.

What is the applicable interest rate?

The rate of interest applicable will vary according to the quantum of loan and the prevailing market rate of interest. It is ideally between the 11-18%.

Fixed or Floating Rates of Interest what is suitable for you?

The borrowers could be at a risk in instances where the rate of interest goes up.  Most government banks still follow the fixed rate system for home loans. Although it is a fixed rate, the lending bank enjoys the right to change the rate at its discretion, even upwards. Practically this does not happen in Sri Lanka.

The attraction of a floating rate home loan is that it is not subject to pre-payment charges.

This would appeal to individuals who expect lump sum money, which could be used to reduce their loan exposure. When considering a fixed rate home loan over a floating rate loan, the important consideration for the customer is that if the interest rates were to rise, he would be protected from the interest rate risk.

Fixed rate loans are generally priced higher when compared with floating rate products.

What are the options available for EPF holders?

The Employees’ Provident Fund (EPF) provides housing loans to its members through State banks, retaining the fund balance of members as collateral. There has been a steady demand for loans under this scheme since loans are granted purely on the recommendations of the EPF.

What are the required details?

In order to obtain a loan for constructing / buying /Renovating a house a form containing following details should be completed.

Personal information of the applicant+ co applicant (if any)

Particulars of spouse of the applicant + spouse of the co applicant

Loan details

What details are mentioned under this?

a. Purpose of loan

b. Amount of loan

c. No of years required for repayment etc.

Does the Applicant has to provide details of the surety?  Yes.

a. property offered as surety

b. details such as deed no

c. present value of the property

d. details such as date of construction ,name of the life interest holder etc

e. particulars of the income tax for the past 3 years

f. Assets held by applicant spouse and children

g. Investments

h. Bank accounts

i. Insurance policies

j. Existing liabilities

k. Monthly income and expenditure of applicant and spouse

Does the bank provide the applicant with the loan now? No

Bank will first evaluate the repayment capacity by studying the details.

Bank will also ask for some documents.

What are the Required documents ?

a. Duly completed Loan application

b. Identity Card

c. Marriage certificate

d. Service letter and salary particulars addressed to the bank

e. Educational and professional certificates

f. Pay slips Last 6 months

g. EPF statement and T10 form

h. Bank statements/passbook last 6 months are some of the documents needed.

These are standard details and requirements and please note that these will vary from institution

to institution.

How long will it take to grant the loan?

These details will be studied by the bank and this will take some time .

Is there any alternative for the applicant to be taken when time of realisation of the loan is considered?

There are Express Loan facilities offered by banks.

Express Housing Loan scheme is to enable you to make your dream home come true really fast.

How many days will it take to grant a loan through the Express service?

Example –

 Option one – within 4 working days

If the loan is to be processed within 4 days, an Express Processing Fee of Rs. 50,000/- will be charged upfront irrespective of the loan amount in addition to the 0.9% processing Fee charged on the value of the housing loan.

 Option two – within 10 working days

If the loan is to be processed within 10 days, an Express Processing Fee of Rs. 20,000/- will be charged upfront for housing loans of Rs. 2 million and above in addition to the 0.9% Processing Fee charged on the value of the housing loan.

Are there any fees applicable for a loan?

In addition to the Processing Fees customer should pay all legal charges applicable for housing loans i.e. mortgage bond charges, transfer deed charges and stamp duty. All the other fees and charges applicable for housing loans such as valuation charges, inspection fees, CRIB report fee & etc. are recovered from the Processing Fee’s, therefore customers are not required to pay those charges and fees.