In September 2020, the The Retirement Benefits (Mortgage Loans) (Amendment) Regulations 2020 was gazetted. This new law paved the way for members of retirement benefits schemes would soon start purchasing residential houses using part of their pension savings.
According to the regulations, Kenyans would access up to 40 percent of their accrued benefits for residential house purchase provided the sum shall not exceed seven million shillings. Despite the passing on of this new regulation, it was not easy for Kenyans to start reaping the benefits as most lenders were not ready to start processing home loans based on mortgage savings.
Home ownership in Kenya has remained relatively low at 21.3 per cent in urban areas compared to other developed countries such as South Africa at 53.3 per cent. The relatively low rate of home ownership in Kenya is attributed to; high property prices, high initial transaction cost such as the initial deposit required to access mortgage, lack of credit risk information for those in the informal sector leading to their exclusion, high interest rates for mortgage loans, lack of real estate finance to fund large scale developments, and low income levels which has made it hard to service loans.
However, the state of home ownership in the country has been changing thanks to new and improved mortgage products. One of these is the Co-operative Bank of Kenya pension-backed mortgage plan which is anchored on the retirement benefits regulations. This product, which was launched in July 2021, is the first pension-backed mortgage loan facility in Kenya. The bank launched the facility in partnership with Enwealth Financial Services Limited.
Under this facility, Co-op Bank announced that aspiring home owners would enjoy an extended repayment period of up to 20 years, subject to the retirement age of the borrower.
With this facility, a pension scheme member can purchase a developed property anywhere in Kenya with a ready title deed or certificate of lease, provided that the house is a residential property for the member’s own occupation. The application can be done by an individual pension scheme member or jointly with a spouse thereby consolidating their pension benefits to access a higher amount.
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“This product is a deliberate response by the bank in support of the Government’s affordable housing pillar of the Big Four Agenda. We are excited to pioneer this innovation that will enable a wider pool of Kenyans to realize their dream of owning a home,” Director Corporate Institutional Banking at Co-op Bank, Jacqueline Waithaka said.
To access this facility, you will need to start by determining the amount of accrued benefits in your pension scheme that can be accessed for home ownership. Once you make this determination, you will then need to identify your dream house. If the 40 percent in your retirement savings account is not enough to cover the cost of the home, you will need to visit your nearest Co-op Bank branch where you will fill out an application for the retirement benefits mortgage loan.
