At about 10 per cent of the total mortgage loan book, the rate of default in Kenya’s home loans market stands a little higher than the global average.
Most of these defaults are caused by sudden loss of income – mostly associated with loss of employment in unexpected circumstances such as retrenchment. This is the reality that lenders are grappling with even as they push for increased mortgage uptake.
To mitigate this risk, Standard Chartered Bank #ticker:SCBK has incorporated a 9-months retrenchment cover in its mortgage offering to cushion borrowers.
David Idoru, the Head of Retail Banking at Standard Chartered Bank says businesspeople and employees, who lose their earnings before finishing mortgage payments, can now have the peace of mind that comes with the cover.
“Insuring mortgage risk has become a critical component of the home loans market that helps clients take a broader and longer-term view of their financial obligations and meet their objectives,” Mr Idoru said.
Mr Idoru however adds that default is often not due to the loan size or income levels but a phenomenon that cuts across all income brackets.
This, he says, is best dealt with through regular contact with the client to find ways of restructuring the facility to allow a continuation of the payments.
Because mortgage is a long term financial facility, it is often advisable that young people take it up as soon as they are employed or have an operating business.
The beauty of it is that assets acquired through mortgage do appreciate over time leaving little room that the borrower could suffer a loss.
“One should take up a mortgage as soon as they have a steady flow of income. A mortgage offers one an opportunity to own a home they can live in as they continue to make payments. The earlier one takes up a mortgage, the lower the repayments due to the benefit of the long tenor at an early age,” Mr Idoru advices.
In Kenya, there has always been debate on the most cost-effective way of owning a home as clients are torn between mortgage options or long-term saving arrangements.
“Mortgage works better than building up savings to buy a property – allowing one to enjoy the benefits of owning a home before the entire amount is paid to the lender. Better still if one has purchased a property for investment, the rental income gives one flexibility in making the monthly payments,” says Mr Idoru.
Standard Chartered offers mortgage facilities in Kenya Shillings and United States Dollars up to Sh100 million, a maximum of 25 years.
To promote home ownership Standard Chartered finances up to 100 per cent for first-time home owners and is currently running a mortgage campaign of Kenya shillings part-fixed for two years at 13 per cent and USD variable at six per cent.
The mortgage facilities are open to Kenyan citizens, permanent residents and expatriates. The facilities are available to salaried employees, businessmen as well as professional consultants who earn a regular monthly income.
Non-resident Kenyans are eligible too.