Home ownership made easier for council employees

Local authority employees are set to enjoy easy access to housing following an agreement between Housing Finance and the Local Authorities Pension Fund Trust (LAPTRUST).

The new arrangement opens doors for an estimated 25,000 employees of 175 local authorities to access housing through their pension contribution.

The scheme is the first to be rolled out since the amendment of the Retirement Benefit Authority (RBA) Act providing for use of pension contribution to obtain mortgage facilities.

“The Freedom Pension Mortgage Solution is an alternative funding for home ownership without any erosion on members’ contribution,” said Mr Frank Ireri, the Housing Finance managing director.

The scheme will provide a 100 per cent financing together with the closing cost which include payment of stamp duty, legal, and valuation fees.

Stamp duty is pegged at four per cent of the value of property while legal fees vary between Sh15,000 to Sh20,000.

Typically, a mortgage facility covers 90 per cent of the value of the property to be acquired with the buyer footing the 10 per cent cost.

The buyer also is expected to raise the closing cost.

Under the arrangement, HF will provide complete financing together with the 10 per cent down payment and closing cost to members of LAPTRUST.

For instance, a mortgage facility of Sh4 million would require a total up-front payment of Sh700, 000.

This would cover the 10 per cent down payment of Sh400, 000, stamp duty of Sh160,000, and legal and valuation fee of Sh62,000.

Other fees charged include insurance for both the property and buyer, costing Sh50,000 and a mortgage processing fee of Sh30,000.

A LAPTRUST borrower of such a mortgage facility (Sh4 million) would end up getting approximately Sh4.7 million, foregoing the lead time need to raise the deposit and closing costs.

In contrast, other borrowers not using their pension scheme would be required to raise the 10 per cent and the closing cost.

In such an instance one would obtain a mortgage facility of Sh3.3 million.

The high closing cost has been the main stumbling block to home ownership.

The partnership between HF and LAPTRUST will enable employees to use their pension contribution to cover the 10 per cent contribution together with the closing cost.

This means that LAPTRUST members will have ability to obtain their desired houses without forking out a penny.

For HF, the property will be the primary security with the pension contribution being secondary security.

The implication is that in the event of defaulting, the mortgage provider may repossess the property and sell it to recover its financing.

The pension contribution is unlikely to be touched unless the realised sale proceeds will not clear off any outstanding arrears.

LAPTRUST managing trustee Hosea Kili said the organisation had partnered with Housing Finance to spearhead the development of tailor-made mortgage finance products and property solutions for members and stakeholders.