How Co-op Bank Sh550 deal with KMRC will revolutionize mortgage lending

The Co-operative Bank inked an agreement with Kenya Mortgage Refinance Company (KMRC) for a loan of Sh549.8 million for onward lending to home buyers, disclosures by the lender’s majority shareholder show.

In its financial report, Co-op Holdings said KMRC is lending the money to the bank at an interest rate of five percent per annum, which will allow the institution to on-lend the same at single-digit rates to mortgage customers earning less than Sh150,000 per month.

“As of the end of 2021, the amount disbursed to the bank was Sh549.79 million,” said Co-op Holdings.

Co-op Holdings, which is owned by co-operative societies and unions, holds a 64.5 percent stake in Co-operative Bank.

The lender accounted for five percent of Kenya’s total outstanding mortgage loans as of the end of 2020, the latest Central Bank of Kenya (CBK) data shows.

This amounted to 1,285 mortgage accounts, with loans worth Sh11.9 billion.

Co-op Bank’s subsidiary Kingdom Bank had also issued mortgages worth Sh1.19 billion at the end of the period, from 203 accounts.

There was a total of 26,971 mortgage loans in issue in Kenya by 2020, worth Sh232.7 billion.

The KMRC was thus formed to feed the banks with long-term funding at five percent interest, which in turn allows them to commit to financing home buyers at friendlier rates and longer tenors.

The mortgage refinancer had by the end of last year accessed Sh6.5 billion in capital for onward lending through a Sh18 billion credit line from the World Bank and the African Development Bank through the Treasury.

Co-op Bank in partnership with Enwealth Financial Services Limited launched a Pension-backed Mortgage loan facility last year for members of pension schemes.

The facility is to enable the over 3 million members of pension schemes in Kenya, who otherwise would have found it difficult to raise enough funds to buy a home, to qualify for a mortgage.

In addition, the facility will enjoy an extended repayment period of up to 20 years, subject to the retirement age of the borrower.

The mortgage was made possible by the recent changes to the law, specifically the Retirement Benefits (Mortgage Loans) Act, Regulations Amendment 2020 that now allows members of pension schemes to utilise up to 40 percent of their accrued pension benefits as down-payment to buy a home.

The facility is targeted at pension scheme members whose 40 percent of their pension benefits cannot cover the full cost of buying a house.

In those circumstances, a member will approach the Bank to access a credit facility to cover the difference.

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.