In a bid to encourage more Kenyans to borrow house loans, some financial institutions introduced pension-backed mortgages, but the move seems to have garnered little acceptance, writes JACKSON OKOTH
A plan to get a mortgage by simply using part of oneâs accumulated retirement savings as collateral against a home ownership loan does not appear to be working.
This can be seen by the low reception pension-backed mortgages have received in the market severely starved of viable options of acquiring a house.
"Since pension-backed mortgages were introduced, their uptake has been low due to poor design and execution by players in the pension industry," said Tirop Kosgey, Ministry of Housing Permanent Secretary.
Housing Finance (HF) was the first to explore this new avenue where mortgage upfront costs and down payment requirements would be covered by 60 per cent of oneâs retirement savings. Intense lobbying is also on by players in the insurance industry pushing for clients to use part of their life insurance savings to access mortgages.
The thinking within the Housing ministry and the construction industry is that actual pension funds should be used to construct houses directly rather than be used as collateral.
"Mortgage finance remains out of reach for many, with the cheapest house of Sh2.1 million requiring those earning a salary of Sh35,000 to get a loan whose repayment period stretches for a period of between 18 to 20 years," said Kosgey.
Pension fund rules
Lack of affordable mortgage finance, shortage of building materials and high poverty levels is hindering supply of affordable housing to middle and low-income groups in Kenya. Other factors causing a gap in the supply of affordable housing units is lack of contractor capacity and access to land.
With annual demand standing at 200,000 units, Kenya is only able to supply about half of this.
"The deficit situation is further aggravated by the fact that we also have a backlog in delivery of two million units, which has occurred due to several supply-side constraints that has persisted over the years," said Kosgey.