HF launches mortgage plan for pension funds

Demand for housing in Kenya currently stands at 150,000 units a year, far outstripping the supply of 30,000 units. Photo/FILE
Demand for housing in Kenya currently stands at 150,000 units a year, far outstripping the supply of 30,000 units. Photo/FILE 

Housing Finance is this morning expected to launch a mortgage product that allows borrowers to use their pensions savings to secure house loans, unlocking the security barrier that has stood in the way of millions of Kenyans owning their own homes.

Lack of security to guarantee home loans has blocked a large number of potential borrowers from accessing mortgage products from financiers.

However, four months ago pensions regulator Retirement Benefits Authority (RBA) issued new regulations allowing contributors to use up to 60 per cent of accrued pension benefits to secure a mortgage from a bank or an ordinary loan to repair an old house.

By venturing into this new frontier HF, and other mortgage providers said to be preparing similar products, will be seeking to expand their customer base and boost revenue streams.

“The solution is expected to stimulate mortgage uptake which has been slow due to requirements for deposits and high closing costs, ” said HF in a press statement.


The move is expected to stimulate activity further in the property market at a time when the sector has defied Kenya’s struggling economy to post 10 per cent growth in the second quarter driven in large part by demand from Kenyans living abroad and increased financing available from locals by banks which had a net lending of Sh16.2 billion in the year to June.

HF is betting on pension-backed mortgage product emerging as profit driver for mortgage providers.

Other mortgage providers Savings and Loans, Standard Chartered and recent entrants Stanbic Bank are said to be preparing products that will help them claim a stake of the pensions industry’s growing asset base.

Privately funded pension schemes controlled assets worth about Sh291 billion by June this year, meaning that under the new KRA regulations, the housing loans market has potential access to about Sh174 billion which is 16 times what the market leader Housing Finance lent out in 2008.

Till now, mortgage providers have relied on Kenya’s top income bracket, Kenyans the diaspora and institutional property developers for uptake of mortgage products.

Sales to the diaspora accounted for 17 per cent of HF’s total business and helped it more than double its half-year income for the period ending June this year to Sh5.4 billion compared to Sh2.7 billion for a similar period last year.

Lack of financing and fear of taking up loans has led to a low demand for mortgage products in Kenya at a time when the country is reeling from an acute housing shortage.

Demand and supply

The Kenya National Bureau of Statistics indicates that the demand for housing currently stands at 150,000 units, far outstripping supply which stands at a paltry 30,000 units.

This new opportunity is expected to benefit young Kenyans in particular who have traditionally been locked out of a home loans market that is tilted heavily in favour of those with high disposable incomes.

It is also seen as a significant win for the self-employed who have been unable to access home loans in a market that favours those in formal employment who are judged to constitute less of a risk.

The advent of pension management schemes for the self-employed means those in the informal and agriculture sectors who have been unable to raise the security needed to access home loans will have access to property financing as long as they are enrolled in a recognised pension fund.

The 60 per cent of accrued benefit accessible will comprise both the employer and employee’s contributions as well as any investment income accrued of the years.

Commercial banks, mortgage financiers, building societies and micro finance institutions are all targeted as lenders, giving individuals a wide range of potential financiers according to turn to.

Institutions offering tenant purchase schemes such as local authorities, non governmental organisations and corporations also qualify as financiers.

The funds can be access to allow for the purchase of land, building of homes, carrying out repairs on homes that have been bought or inherited.

They will also cater for transaction fees such as legal and government fees.

“Such products will make mortgage services more accessible and to a wider population, ” said Mr Edward Odundo, RBA chief executive.

The guidelines open the door to early home ownership for all contributors except those who are within less than five years of their retirement age as prescribed in their employment contracts.

Besides unlocking the home loans market to informal sector workers, the move is also expected to improve the country’s savings level by encouraging the large number of Kenyans who are currently not enrolled with any pension scheme to do so in order to access home loans and stave off old age poverty.

RBA chief executive Edward Odundo said several mortgage financiers are working on modalities to roll out similar products, including two insurance firms who have applied to the Insurance Regulatory Authority seeking approvals.

“This would be the easiest way yet to access house loans as it is not based on actual cash payments by individuals”

Mr Odundo is however cautioning that pension managers must make “adequate insurance arrangements” for the loan and the property before offering the guarantee.

The loan cannot also exceed the value of the property.

Contributors are however barred from using their savings to purchase properties that have been partially financed by other mortgages or to guarantee loans more than once.