New scheme gives senior officials cheap house loans

What you need to know:

Treasury secretary Henry Rotich has published rules that will see senior State officers get up to Sh40m for buying homes.
The move paves the way for release of the initial Sh1 billion tranche in less than two weeks.
The loans will cost the senior State officers only a small fraction of the prevailing market rates of up to 18 per cent for majority of Kenyans who borrow from commercial banks.

Taxpayers will pay billions of shillings to finance cheap mortgage loans of up to Sh40 million each for cabinet secretaries, governors, the attorney general and other senior State officers.

Treasury secretary Henry Rotich has published regulations on administration of the newly created mortgage fund, paving the way for release of the initial Sh1 billion tranche in less than two weeks.

Top beneficiaries of the cheap housing loans will be the 18 cabinet secretaries, 47 governors, the Attorney General Prof Githu Muigai, Secretary to the Cabinet Francis Kimemia and Chief of Defence Forces (KDF) Julius Karangi who will each be entitled to a House loan of up to Sh40 million each.

The loans will cost the senior State officers only a small fraction of the prevailing market rates of up to 18 per cent for majority of Kenyans who borrow from commercial banks.

“Interest payable on loans shall be at the rate of at least three per cent per annum on monthly reducing balance or such other rate as may from time to time be determined by the committee,” says Mr Rotich said in the explanatory memorandum to the Public Finance Management (State Officers House Mortgage Scheme Fund) Regulations 2015.

If all the 68 senior State officers access the maximum of Sh40 million loan they are entitled to, the Treasury will need to set aside at least Sh2.7 billion to finance the mortgages scheme.

The average mortgage size for the 20,000 Kenyans who have taken out house loans, according to the Central Bank of Kenya data, is about Sh6 million.

Principal Secretaries, members of Independent Commissions, holders of independent offices (Controller of Budget and Auditor General) will be entitled to a house loan of up to Sh35 million each.

The vice commander of the KDF, commander Kenya Air Force, commander Kenya Navy, Director General, National Intelligence Service, Inspector General of Police, Director of Public Prosecutions will receive a maximum of Sh30 million for purchase of construction of private residence.

The last category who will benefit from a maximum of Sh25 million housing loan are the deputy constitutional office holders, registrar of political parties, other State officers and chief executive officers of government agencies.

The loans will be repaid within 20 years or before the borrower attains the age of 70 years, whichever is earlier.

State officers appointed at the age of 70 years or above will be required to repay the loan for the duration of the State officer’s appointment.

READ: High interest rates lock most Kenyans out of home loans

The regulations empowers the advisory committee to allow a borrower who ceases to be a State officer before full loan repayment to continue to repay the loan on the same terms as set out in the regulations provided that when the borrower defaults in a period of four months, the outstanding loan will revert to prevailing commercial interest rate.

“Where the commercial rate is applicable, and the borrower is in default for a period of four months, the fund may call in the loan and sell the charged property by public auction or public treaty,” the rules say.

“A borrower may give prior authority in writing for his pension dues to be utilised to clear any outstanding debt in case the borrower retires before fully paying the loan,” the Rotich regulations state.

The State Officers House Mortgage Scheme Fund will provide a loan scheme to be managed by an advisory committee established within the national Treasury.

The advisory committee of the fund will consist of the director of administration, director of budget supply, director human resources and the director fiscal decentralisation. The team will approve all housing development and financing proposals and criteria for the beneficiaries of the fund among others.

The capital of the fund consists the initial Sh1 billion appropriated by Parliament in the current financial year and such other funds that may be voted for the purpose of the fund in subsequent financial years.

The Salaries and Remuneration Commission (SRC) set a house mortgage benefit for all State officers in the national government except the Judiciary and Parliament, through the State Officers Mortgage Scheme Fund.

The loan scheme for State officers only exists in the Judiciary and Parliament and not in the Executive.

“The purpose of these regulations is to establish the State Officers House Mortgage Scheme Fund and to set up a clear framework for managing mortgage scheme,” says Mr Rotich.

Section 24(4) of the PFM Act allows Mr Rotich to establish a public fund and the regulations on the mortgage scheme for State officers are anchored in the said provision.

According to the regulations, a loan granted from the fund will be solely utilized for purchase or development of residential property for the occupation of the borrower or equity release for improvement of the residential house.

“The loan granted shall be funded at the rate of 90 per cent of the value of the property but shall not exceed the maximum loan threshold set and this shall be based on the ability to pay and repaid by check-off system,” the regulations state.

To secure the loan, the administrators of the fund will register a charge on any property financed through the loan granted.

“A borrower shall take and maintain a life insurance policy and a fire insurance policy with an insurance company approved by the committee, the cost of which shall be paid out of the fund and debited in the borrowers account.

“Where a borrower defaults in the repayment of the loan for a period of three consecutive months, the advisory committee shall reposes and sell the property to another deserving State officer,” the regulations contained in Legal notice 23 which was tabled by Majority leader Aden Duale on Tuesday states.

The regulations also allow the advisory committee to approve the appointment of a tenant purchase institution or a mortgage finance company to administer the fund.

“The Fund, or where applicable, the tenant purchase institution or a mortgage finance company may charge an interest of not more than two per cent of the value of the loan to cover management costs,” the regulations read.

The regulations were referred to the committee on delegated legislation for scrutiny by national assembly Speaker Justin Muturi.

Mr Muturi reminded the committee that the team has 15 days to scrutinise the piece of legislation or it automatically becomes law after expiry of the deadline, meaning State officers can access the money by mid-April, 2015.