HF lowers entry barriers to grow mortgage loans

  National Treasury Cabinet Secretary Henry Rotich (right) with Housing Finance managing director Frank Ireri during the launch of the Ezesha mortgage product in Nairobi September 3, 2013. SALATON NJAU
National Treasury Cabinet Secretary Henry Rotich (right) with Housing Finance managing director Frank Ireri during the launch of the Ezesha mortgage product in Nairobi September 3, 2013. SALATON NJAU 

Mortgage lender Housing Finance (HF) has lowered the entry barrier for new borrowers with a house loan deal that removes the requirement for payment of deposit, stamp duty and legal fees.

The company is targeting low to middle-income earners who can afford mortgage repayments, but to whom house loans remain out of reach due to high up-front costs demanded by lenders.

“Most people are willing to pay for mortgage even at the current interest rates, but are unable to raise the initial cash requirements.

‘‘Uptake of credit rather than an affordability problem is the main obstacle,” said HF managing director Frank Ireri on Tuesday during the launch of “Ezesha” loans.

Kenya has an estimated 20,000 mortgage accounts in a population of 40 million, which indicates a huge growth potential for lenders with a strategy to tap borrowers.


The lender estimates that the number of Kenyans considered middle income class have increased from 1.5 million in 2002 to 3.9 million at the end of 2009, underlining the high growth potential for mortgage takers.

Further, HF estimates that 4.3 million housing units will be developed between 2008 and 2030, with 52 per cent being for low-income urban homes.

Housing finance controls about 35 per cent of Kenya’s mortgage market.

HF says it will cover up to 105 per cent of the value of mortgage property, which includes 100 per cent of the value of the property, four per cent to cover stamp duty fees and one per cent to cover legal and valuation fees which a customer is eligible to pay.

With closing costs amounting to approximately 18 per cent of the property value, the company will cover 15 per cent of the value of the closing costs, meaning the customer will still have to come up with three per cent of the value of these costs.

The borrower will also be required to take out insurance to cover part of the loan cost to protect the company in instances of default. Mortgage loan risks are ordinarily mitigated by the deposit the borrower makes, plus the property which is used as a collateral security.

Under the arrangement, the company will cover any shortfall in the value of the security.

“The rate applicable is four per cent per annum, and while the applicable rate is fixed the amount will vary depending on the mortgage value,” said HF business manager Timothy Gitonga.

The Treasury in 2009 allowed use of pension contributions as collateral for mortgage loans to increase uptake, which saw HF launch its pension backed ‘‘Home Freedom’’ product. The uptake was not encouraging however, hence the decision to launch the new facility in pursuit of new customers.

“It (Home Freedom) did not take off because it relies on pension scheme trustees to give guarantees against the mortgage, and very few of them are willing to do so,” said Mr Ireri.

The mortgage will be charged a fixed interest rate of 15.9 per cent on reducing balance, HF said, and will be limited to a maximum of Sh15 million or for customers with monthly income of up to Sh350,000.

Uptake of mortgage in Kenya as a means of owning homes remains low due to high interest rates and costs of financing the loans, as well as difficulty in accessing security especially land title deeds.

Variable mortgage rates charged by banks that allow for revision as per the prevailing macro-economic conditions have for long been seen as discouraging potential mortgage borrowers in Kenya.

HF plans to list real estate investment trusts (REITs) on the Nairobi bourse.