Owning a house is one of the most important decisions in a world where not only are rental payments skyrocketing but terms and conditions are getting tighter. As some Kenyans go out of their way to acquire homes using their savings, there is a segment of Kenyans who prefer financing acquisition of homes through mortgage loans.
With a good financial provider, a property buyer should find workable solutions even in the unlikely event that he/she is unable to properly service the mortgage. How this is managed means a lot to the property buyer. At Co-operative Bank, Property Hub Manager Patrick Macharia notes that statutory sale of a property by a bank, known technically as foreclosure, is the last resort.
With a Co-op Bank mortgage, Mr Macharia notes that the property is first transferred to the buyer’s name and only charged to the bank as security for the loan. In the unlikely event that the customer is unable to service the loan, Co-op Bank has over a dozen products that such a person can take advantage of. “Sometimes we advise the customer to consider renting out the house with the rent receivables being channeled towards servicing of the loan,” Mr Macharia says.
Co-op Bank’s Good Home Mortgage comes with a mandatory life insurance cover that carries a retrenchment rider, in which case, the insurer would intervene for the first six months after retrenchment. During this time, the customer would be working on an alternative source of income to cover monthly repayments.
The ultimate option available through Co-op Bank is the situation where the customer would sell the property in the open market (at the prevailing market prices) to apply the sale proceeds towards clearing the outstanding loan balance. Given that the property value grows as the loan reduces with time, the property buyer would in such a case walk away with the residual amount from sale of such a property.
From the examples shared, a prospective house owner needs to pick his mortgage partner very carefully, and as shared by Mr Macharia, here are some of the key things to look out for when buying a house through mortgage financing.
Credibility of the Institution
Your ideal financial institution should be a reputable and flexible partner, ready to walk with you in the event you run into financial woes.
“As envisaged in the loan contractual documents, the mortgage financier should clearly communicate how different situations during the life of the mortgage should be addressed,” Mr Macharia says.
In case of a drop in your current income how would the bank address such? Would the bank allow lump sum or accelerated loan payments without penalties?
The affordable Co-op Bank mortgage that is backed by the Kenya Mortgage Refinance Company (KMRC), is a good example of a solid product that provides mortgages at an affordable rate of 9.9% under flexible terms.
When buying a house, it is important to carry out proper due diligence on the property because as an investor, all responsibility over the property is vested in you, even long after your mortgage is fully paid.
On the due diligence, corroborate the seller’s details, property location, historical issues, property documentation, interests and encumbrances etc. As a high-value and a long-term investment you don’t want to hold onto a property or pass on to your dependents an asset that carries legal issues.
It is equally important to understand the regime under which the property is registered. Is it free hold or lease hold? With the latter attracting annual land rent to the Government of Kenya, understanding this helps you to know your obligations relating to the property. You will also want to check whether the property lies within a municipality or not, which may give you an indication of applicable regulations and ground rates.
It is also prudent to understand the previous ownership of the property to check for any disputes. Be keen to spot cues and hints that would expose properties sitting on public utilities such as roads, waterways or government land, as such properties eventually end up in disputes and heavy losses through demolitions.
To help you navigate this huddle, Co-op Bank carries out comprehensive due diligence on all properties sold through the Co-op Bank Property Hub, saving property buyers the worry of dealing with dubious properties.
Purpose: Intended use of the property
Are you buying the house to live in, rent out, or for speculation? “Buying property within in Nairobi City for speculation would not make so much financial sense,” Mr Macharia advises. “Properties in such areas are highly priced, with very little room for value appreciation. Speculators are better off looking outside the city where properties are reasonably priced with plenty of room for value appreciation.”
He further says that you can seek advice from reputable property consultants like Co-op Bank’s Property Hub to make the right investment decision noting that “while a mortgage is a temporary engagement, your property is a long term investment.”
Mortgage Interest Rate
When shopping for a mortgage, you need to consider your current financial obligations to gauge your ability to service the mortgage. After the statutory deductions from your gross income, you should commit a maximum of 60% of the disposable income for repayment of the mortgage, leaving you with enough money to cover your other living expenses.
At the rate of 9.9% p.a. offered by Co-operative Bank in partnership with Kenya Mortgage Refinancing Company, a mortgage loan repayment for a house within the affordable housing bracket is within reach for the ordinary Kenyan seeking to acquire a home.