Uhuru bows out with huge home loan boost for MPs

The Treasury has increased the mortgage ceiling for members of Parliament by Sh5 million each, the latest concession by the Executive to MPs as it seeks to unlock the stalemate over the Finance Bill, which gives the government authority to collect taxes.

An amendment to the Parliamentary Management Scheme Fund Regulations 2011 gazetted by former Finance minister Uhuru Kenyatta at the beginning of the year means that mortgage loans for MPs will increase to Sh20 million up from Sh15 million each.

“A member of the Tenth Parliament shall be eligible for a further loan not exceeding the sum of five million shillings, which shall be repayable on or before the 30th day of June, 2012 or two months before the General Election whichever date is later,” the amendment reads.

The wording of the amendment suggests that it was crafted with an August 2012 election date in mind as contained in the Constitution.

The actual date, however, has since been mired in legal arguments with the High Court recently ruling that the elections can be held as late as March 2013 unless the coalition is dissolved to pave the way for earlier polls.

That technically means that the MPs will have a longer time to repay the supplementary mortgage, giving them a grace period in terms of monthly repayments and in the actual cost of money.

Average mortgage interest rates have increased to around 19 per cent in tandem with the austerity measures announced last October, which raised the benchmark Central Bank Rate from 11 per cent to 18 per cent.

The drastic measures were caused by a weakening shilling and rapid surge in the inflation rate.

This saw average commercial bank interest rates surge from 15 per cent to more than 25 per cent currently.

Kwame Owino, CEO of the Institute of Economic Affairs, said the latest amendment was a deliberate move by the Treasury to gift MPs with cheaper loans in their final year in office.

“The timing of the increment notwithstanding, legislators are being insincere when they claim that high interest rates are hurting the public while on the other end they gift themselves such benefits,” he said.

Loans under the scheme are charged an interest rate of three per cent per year, a discounted rate made possible because MPs are exempted from paying the low interest benefit tax, which is pegged on prevailing Treasury bill rates for the previous six months.

The discounted loans will come as a bonus to the legislators who are entitled to a winding up allowance of Sh300,000 per year served, meaning they will each get Sh1.5 million when Parliament is dissolved.

While the dollar has improved relative to the shilling and inflation too coming down to 18.93 per cent, interest rates for borrowers have all but remained high. Banks have had to renegotiate loan repayment with customers to avert massive defaults.

“Given the economic difficulties in the country, financing of public offices should be steering away from gratuitous payments and benefits,” Mr Owino said.