Pension relief likely to boost morgages

Housing Finance is expecting a rise in the uptake of pension-backed mortgages after new changes effected on the Revenue Benefits Act. The mortgage lender said the new amendments will make this type of mortgage more attractive for borrowers while it will also be easier for financiers to manage and operate.

Finance minister Njeru Githae in the 2012/13 budget statement introduced new amendments affecting various financial sectors including the pensions industry. “Uptake (of pension-backed mortgages) has been low from our experience, because of the various challenges but which have now been amended,” managing director Frank Ireri said Thursday. “There will now be higher take up and we see more financiers introducing these products,” said Ireri. The listed lender anticipates the new changes will erase barriers that have hindered take-off for pension-backed mortgages in the country. The 2009 amendments to the RBA Act permitted members of pension schemes to use as security up to 60 per cent of accumulated savings as collateral for property loans.

Among challenges that barred uptake of this type of mortgage included failure by trustees to amend trust deeds for pension schemes, while the market has also been generally unaware of its availability. Previously, only those applying for new mortgages could assign their benefits but a new amendment now allows members to transfer existing mortgages to pension schemes. “The effect of this provision is that it makes it possible for someone taking equity release to assign their pension for further funding,” said Ireri.

Another amendment now allows use of pension as the primary security for purchase or development of rural property. Hitherto, pension could only be a secondary security while the property being financed served as the primary security. “This opens up opportunities for us to finance properties in rural areas,” said Ireri, adding that Housing Finance has traditionally not accepted land as good security for lending.

Other changes made to the RBA Act include use of pension to guarantee for initial closing costs. The rules previously required that the property being financed be in place before release of the guarantee. Also, in the event of mortgage default or loss of steady income, the financier can now call the pension guarantee to offset the loan balance.

Mortgage financing in Kenya is largely accessed by those with predictable income sources or those with qualifying collateral. According to the Central Bank of Kenya, collateral should not be the primary basis for lending but a fall-back in case of eventualities unforeseen at the processing stage. “These amendments provide for easier management and operation of pension-backed mortgages,” said Ireri, adding that schemes that have amended their deeds are few but they will see more members going for this type of mortgage.

The Local Authorities Pension Trust (LapTrust) – with a membership of over 24,000 – was the first retirement benefits scheme to amend its trust deed to allow its members to access property financing through HF’s pension mortgage dubbed ‘Home Freedom’.