CAK flags 12 banks with hidden mortgage charges

Home loan borrowers could get better terms after the competition watchdog directed 12 banks to revise their terms and conditions, citing hidden charges or skewed contracts against their clients.

The Competition Authority of Kenya (CAK) reviewed home loan contracts for 27 banks and found the information provided to consumers by 12 of them was incomplete, unclear, and unfavourable.

The anti-trust body found that KCB Bank #ticker:KCB, NCBA Bank #ticker:NCBA, Absa Bank Kenya #ticker:ABSA, DIB Bank Kenya, Mayfair Bank, Consolidated Bank, Victoria Commercial Bank and Bank of Baroda were some of the lenders with unfair mortgage contracts.

The competition watchdog said the banks had been ordered to review home loan contracts.

Eleven of the banks had complied while one requested for additional time.

The CAK said the competition law stipulates that a consumer should be informed of all charges and fees payable prior to the same being imposed.

Banks must also ensure their clients understand all the documents relating to the service they are obtaining.

“From the reviewed T &Cs, twelve (12) banks were found to be non-compliant with Section 56 of the Act on unconscionable conduct and consequently they were required to revise their T&Cs,” CAK director-general Wang’ombe Kariuki is quoted saying in the 2021 Auditor-General’s report.

“As at 30th June 2021 eleven (11) banks had revised their terms and conditions and informed the Authority of the rollout while the remaining one (1) requested for an extension of time.”

The hidden mortgage costs, including valuation, origination, booking, mortgage and title transfer, commissions, brokers’ fees, legal fees, insurance and stamp duty, can exceed 10 percent over and above the mortgage rate.

While a typical loan is charged between seven and 15 percent, a home loan also attracts additional legal, insurance and valuation costs that are borne by borrowers, making it costly.

The rate itself varies during the repayment period, with the Central Bank of Kenya (CBK) indicating 80.2 percent of mortgage loans were on variable interest rates in 2020.

Once you get the loan, you are charged an application fee, which is usually non-refundable even if the mortgage doesn’t get approved.

Borrowers may also face onerous penalties whenever they fall on difficult times and struggle to pay their mortgages. The may also be hit with additional legal and auctioneers fees when the home is sold.

The Kenyan mortgage market is controlled by very few banks giving them a stranglehold of the home loans sector.

KCB, NCBA, ABSA and DIB – which were on the CAK’s list of bad home loan contracts -- are among the top 10 mortgage lenders in the country, accounting for the biggest chunk of the Sh232.7 billion portfolio as at December 2020.

About 74.5 percent of lending to the mortgage market was by six institutions according to the Central Bank of Kenya (CBK) annual banking report.

This means those affected by the flawed contracts account for a huge chunk of the 26,971 home loan borrowers.

Kenya’s home loan market has failed to grow, with the CBK blaming the impact of the Covid-19 pandemic, high cost of housing units, high cost of land for construction, low income levels and limited access to affordable long-term finance.

There were 26,971 mortgage loans in the market in December 2020, down from 27,993 in December 2019.

This was a decrease of 1,022 mortgages or 3.7 percent, mainly due to repayments and fewer mortgage loans advanced due to the effects of the pandemic.

The banking regulator, however, noted that high incidental costs such as legal fee, valuation fee and stamp duty were a major impediment for seeking home loans.

“Institutions suggested a number of measures to be put in place to support the residential mortgage market in Kenya. Some of the suggested measures include streamlining and simplifying the legal and regulatory process governing the mortgage sector for transparency, efficiency and certainty,” the CBK said.