Rivalry among banks eases access to housing loans

The mortgage market is set to be ruffled as Co-operative Bank flexes its muscles by reducing the “closing cost” — the initial amount one is required to raise before accessing a mortgage facility — and unlocking the huge potential held by co-operative societies.

The closing cost is seen as the main hurdle to the uptake of mortgage products as it raises the initial down payment, with majority of prospective first time home owners unable to raise it.

The closing cost item typically includes a down-payment of the total cost of the house to be purchased, which ranges from 10 to 20 per cent, legal fees, stump duty, valuation fees, life insurance and loan registration fees.

“The biggest bottleneck to home ownership is the closing cost, which is blamed for the low uptake of mortgage and we have made it easy by lowering it to five per cent”, said Mr Chris Chege, the Head of Mortgage at Co-operative Bank.

For example, to access a mortgage facility of say Sh4 million, a prospective home owner will be required to fork out not less than Sh700,000 which constitutes 10 per cent value of the house, four per cent stamp duty, Sh30,000 for property and life insurance and Sh12,000 valuation fee.

Other charges are Sh51,000 legal fee and Sh30,000 bank facility fees.

By launching its flagship product dubbed Good Faith Mortgage, the bank joins other financial institutions which are already offering mortgage products in the market such as Barclays Bank, Standard Chartered Bank and CFC Stanbic Bank.

The entry of commercial banks comes at a time when the property market has been the preserve of the country’s two main mortgage lenders, Housing Finance and Savings and Loan, a subsidiary of Kenya Commercial Bank.

Mr Chege said their entry would be aided by plans to unlock the potential held by their business partners, the co-operative movement, which through various Saccos is estimated to hold the largest chunk of land for house development. With an estimated 3,000 Saccos in the country, majority of which are known for investing in land for their members.

“The Sacco movement holds extensive land for their members and we intend to ride on the business ties we have with them to enable ease of access to houses by the members,” said Chege in an interview with Business Daily.

Demand for houses
The country’s demand for houses is estimated at 200,000 units per year, which is way above the industry annual supply of 40,000 units. This mismatch has been blamed on the exorbitant cost of housing, which has priced many Kenyans out of owning a roof over their heads.

“The existing prices are driven by the forces of supply and demand with other issues such as security, accessibility and existence of amenities seen as critical,” said Ms Linet Oyugi, a policy analyst with the Institute of Policy Analysis and Research (IPAR).

Source: www.businessdailyafrica.com

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