Mortgage Loans: Big boost for Kenyan pensioners

NAIROBI, Kenya, Oct 29 2009

The scramble for the Kenyan mortgage market went up a notch higher today after a two key players in the sector announced a revolutionary way in guaranteeing mortgage loans.

In what is likely to shake up the mortgage sector to the core, Housing Finance and British American Insurance today announced that local pensioners will now be permitted to tie up to 60 percent of their accumulated benefits as a guarantee for mortgage loans.

British American Insurance and Housing Finance jointly launched the “Home Freedom” product that will see the mortgage lender offer financing of up to a maximum of 115 percent of the open market value of the property with the pension funds as collateral.

Speaking to members of the press, HF Managing Director Frank Ireri said there are over Sh250 billion in pensions funds excluding NSSF (National Social Security Fund). He said their product has virtually unlocked 60 percent of the Sh250 billion.

“That, is a lot of demand,” he said.

He added that the pension-backed product which has been made possible following the amendment to the Retirement Benefits Authority Act would spur the demand for homeownership which would in turn grow the mortgage industry.

This is because it also reduces the barriers to entry which requires potential home owners to save enough money for a down payment.

Although he remained guarded on what percentage this would contribute to the growth of the industry, he remained optimistic.

“I don’t want to be quoted on that because I honestly don’t know but it is going to be substantial,” he said.

Currently various estimates of Kenya’s demand for urban houses is at 150,000 units per year against a supply of 35,000 houses.

The recent review of the savings Act was warmly received. Touching on the subject, the Retirement Benefits Authority CEO Edward Odundo said the review of the Act, which was done five months ago, is also set to change the savings culture of Kenyans particularly that of the youth.

“Most of us are too impatient to save long term and we want to access our savings long before we retire. But most importantly, it (Act) will change the way pension savings is achieved,” he said.

Speaking about the newly launched HF/BAI product, the CEO predicted a scenario where young people will want to start saving as soon as they enter the work force something that will change the perception that they have been having wrong priorities.

Saving for retirement in Kenya is voluntary and it has been challenging to convince people to start putting some money aside early on in their lives for this purpose as they argue that they would be too old to enjoy any tangible benefits from the funds.

photo: treesftf

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