Pay blocks MPs from accessing Sh20m mortgage

What you need to know:

A report from the Parliamentary Service Commission (PSC) says that the bulk of 260 legislators out of 418 whose mortgage applications were approved had failed to get the maximum entitlement (Sh20 million).
The loan is subject to an interest rate of three per cent per annum and must be fully paid by the end of their term.
This means that MPs — serving in the Senate and the National Assembly — require about Sh400,000 monthly to repay the loan in the four years given that the 11th Parliament will be shorter than the set five years.

A majority of MPs have been unable to access the full mortgage of Sh20 million because their pay cannot accommodate the monthly deductions.

A report from the Parliamentary Service Commission (PSC) says that the bulk of 260 legislators out of 418 whose mortgage applications were approved had failed to get the maximum entitlement.

The loan is subject to an interest rate of three per cent per annum and must be fully paid by the end of their term.

National Assembly clerk Justin Bundi says in the 2013/14 audit report of the mortgage scheme that delays in releasing money to the fund posed a challenge to MPs accessing maximum entitlement before the end of their term.

“This led to the challenge of accessing maximum entitlement of Sh20 million since the repayment is limited to the payroll check-off system, thus lacking the ability to repay the loan on or before the end of parliamentary term,” Mr Bundi said in the audit report that was tabled by Majority Leader Aden Duale on Thursday.

While most banks demand that borrowers retain at least one third of their pay after taxes and other deductions, the parliamentary mortgage scheme is not tied to this requirements based on regulations issued by Speaker Justin Muturi in April 2013.

“The maximum loan to be granted under these regulations to a member of the Scheme shall be a sum equivalent to the member’s net emoluments at the time of application multiplied by the number of months remaining for the life of that Parliament,” reads the regulations.

This means that MPs — serving in the Senate and the National Assembly — required about Sh400,000 monthly to repay the loan in the four years given that the 11th Parliament will be shorter than the set five years.

The 11th Parliament’s term will end at least three months to the General Election meaning that the House will dissolve sometime in May 2017 if elections are held in the second Tuesday of August or in September 2017 if the polls takes place in December.

READ: MPs seek Sh7.8bn for mortgage, car loans and mileage

While MPs earn a monthly salary of Sh532, 500, which is taxable at the rate of 30 per cent, they have a Sh5 million tax-free car grant, pensions and extra allowances that take their gross earnings to the Sh1 million-shilling mark.

The lawmakers have been pushing for higher pay, arguing that they need higher wages because their constituents expect them to provide charitable support.

The audit report shows that Sh3.8 billion had been advanced to MPs and PSC staff in the year to June last year, up from Sh855 million in the same period the previous year.

The report also indicates that Sh1.3 billion owed by members of the 10th Parliament, who had an interest-free mortgage loans of up to Sh15 million, was recovered in the fiscal year to June. The recovery was done more than six months after the dissolution the 10th Parliament.

Majority of civil servants are also unlikely to benefit from the cheap car loans and mortgages offered to them from January due to their low pay.

Financial experts reckon that those below job group H will find it difficult to access the loans and meet a rule that requires them to retain at least one third of their pay after taxes and other deductions.

The Salaries and Remuneration Commission (SRC) approved the car loans that range from Sh600,000 to Sh10 million while the mortgage scheme will range from Sh4 million to Sh40 million depending on the grade of an individual.