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All eyes on banks as State launches mortgage lender

Martin Mwita @MwitaMartin

The launch of the Kenya Mortgage Refinancing Company (KMRC) has now turned the heat on lenders, as the government soldiers on to implement the affordable housing arm of the Big Four Agenda amid pending issues.

President Uhuru Kenyatta unveiled KMRC in Nairobi yesterday, setting the ball rolling in the provision of long-term funds to primary mortgage lenders, who are expected to avail affordable mortgages to the market in the short term.

Uhuru called for fixed interest rates on mortgages under KMRC, tasking banks, micro-finance institutions and Savings and Credit Co-operative societies (Saccos) to pass the benefits to low-income earners who cannot afford current mortgage rates.

Fixed-rate interest

“KMRC will be expected to provide fixed rates-long-term-low interest funding to primary mortgage lenders, which will be passed on to home buyers. Fixed rate mortgages will protect home-owners from the risk of interest rates volatility, hence allowing them to be in control of their monthly commitment, and afford their homes,” said Uhuru.

KMRC acting chief executive Johnston Oletitia has since hinted the interest rates in the refinancing scheme could offer interests as low as five per cent, a 61.5 per cent drop from the current market average of 13 per cent.

“We are waiting for a licence from the Central Bank of Kenya. Once licensed, KMRC will start doing business,” Oletitia told Business Hub on the sidelines of the launch.

One of the biggest question is whether banks will agree to a single-digit-fixed-interest rate with the Kenya Bankers Association (KBA) rooting for a liberalised market driven by demand and supply.

“Fixed or floating, whichever mode, the pricing will come down based on low refinancing rates but it should not be capped. Let it play to the market conditions. Competition will bring it down,” KBA CEO Habil Olaka told Business Hub.

Allowing banks to price the mortgages could see interest rates remain high as the lenders seek to make higher profits, while they navigate the interest rate cap law which has eaten into their earnings since September 2017.

“Discussions around the rates are ongoing,” said Oletitia.

KMRC is majority-owned by the private sector at 80 per cent with government taking the remaining 20 per cent through Treasury.

Eight commercial banks, eleven deposit-taking saccos and one microfinance bank have the controlling stake in the company.

Kenyans are, however, still concerned over the distribution module set by government, which plans to allocate the houses on a rotary formula, according to Housing Principal secretary Charles Hinga.

‘Boma Yangu’ platform

People seeking houses under the scheme have to register on the ‘BomaYangu’ platform where they are required to submit personal details and housing preferences.

“The initial eligibility for allocation will depend on when you registered, family status as well as demand across housing categories. Those who do not get an allocation in the initial rota are then put on a waiting list to ensure that they get priority in subsequent allocations,” the State notes on its site.

Affordable housing loans will be offered to primary mortgage lenders to refinance affordable mortgage loans capped at Sh4 million within Nairobi  and Sh3 million elsewhere, with the facilities mainly targeting borrowers with a monthly income of not more than Sh150,000. It is not clear if those earning more than the said amount will access the mortgage facilities but KMRC has a second loan plan dubbed ‘market housing loans’ where credit will be extended to primary mortgage lenders at market rates.

The government is also navigating through a court battle where a number of lobby groups have protested the planned 1.5 per cent levy on workers’ gross salary. On Monday, the High Court extended orders barring the government from implementing the housing levy until May 27.

Federation of Kenyan Employers (FKE), Consumers Federation of Kenya (Cofek) and the Central Organisation of Trade Union (Cotu) are among those against the deductions.

President Uhuru later visited Parkroad Estate in Ngara where the government is building 1,370 houses with the first 228 units expected to be ready by September. “This project will used as an example for all the other projects in other towns like Mombasa, Kisumu, Eldoret,”he said.

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