Top up mortgage

By Ferdinand Mwongela

Second mortgages, or equity release, is taken after the first mortgage and secured against the same property to buy other properties, settle financial obligations or as capital for a business.

However, not all financial institutions offer this facility.

Housing Finance’s head of Mortgage Finance David Maveke says second mortgages come with benefits such as reduced interest.

"When taking out a second mortgage, minimal costs are incurred as clients are not charged stamp duty and other approvals levied on the first one," says Maveke. "Even the registration and transfer periods are shorter as the process takes about seven days. Institutions generally take about 21 days to process a first mortgage."

According to Maveke, the number of people willing to take mortgages is rising.

"The mortgage market is growing rapidly," he says.

Co-operative Bank’s head of Mortgage Finance Chris Chege agrees.

"There is still a lot of potential in the market," he says. "Only 25 per cent of the money going into the construction industry comes from structured institutions with Sh27 billion coming from banks."

Co-operative Bank recently launched Good Home Mortgage.

"A second mortage is not only for existing customers as people already with a first mortgage from a different bank can qualify," explains Maveke.

Terms and conditions

Standard Chartered’s Sales and Service Manager for Mortgages Catherine Kairu says the bank offers a second mortgage to clients with an already existing facility but does not allow a second charge.

"Unless you are discharging the property and charging it to us," she adds. "A borrower who has a facility with another bank and wants another with Standard Chartered has to give another property as security."

KCB’s Savings & Loans (S&L) also has its own conditions.

"It is possible to get a second mortgage from a different bank but we would prefer it if the borrower took it first from our institution," says S&L’s Sales Manager George Laboso. "We also prefer to hold the legal title."

It is, therefore, easier for a borrower to take out a second mortgage from the same financier. However, should the borrower wish to secure a second mortgage from a different financial institution, the banks have to agree on the terms and conditions.

"The second bank would have to decide whether it will allow the loan to be a second charge," explains Maveke. "Alternatively, the second bank can choose to buy out the first bank’s loan and consolidate the two mortgages into one. This is more common. Nonetheless, changes in interest rates have to also be taken into consideration."

A borrower then would have to choose whether to run both loans separately or affix the two charges to one title.

Sector players agree that many people are unaware of the facility.

"Equity release forms about 30 per cent of our books yet this arrangement enables a homeowner to access financing for other uses by using the asset he already has without going out on a limb or using another property as collateral," Maveke says. "A second mortgage could be better than going for a personal loan that has short repayment periods."

Current value

A second mortgage has its risk and it is only prudent that a borrower puts the funds into a good use so it is worth it.

The second mortgage can only be taken on the basis of the value of one’s equity, which is arrived at by subtracting the amount paid on the first mortgage from the current value of the house.

The value of properties keep appreciating year after year thus in a few years, the house could be worth much more than the initial sale price. Once this added value is put in perspective, one can access a substantial mortgage amount.

"The decision to provide a second mortgage is based on one’s cash flow and the borrower’s ability to service the loan," Maveke cautions.