NAIROBI, Kenya, Oct 29 – Local pensioners will now be able to use up to 60 percent of their accumulated benefits as a guarantee for mortgage loans.
This follows the launch of a product dubbed "Home Freedom" by Housing Finance (HF) and British American Insurance that will see the mortgage lender offer financing of up to a maximum of 115 percent of the open market value of the property with the pension funds as collateral.
"We have over Sh250 billion in pensions funds excluding NSSF (National Social Security Fund). You can imagine unlocking 60 percent of Sh250 billion. That is a lot of demand," said HF Managing Director Frank Ireri.
He added that the pension-backed product which has been made possible following the amendment to the Retirement Benefits Authority Act would spur the demand for homeownership which would in turn grow the mortgage industry.
This is because it also reduces the barriers to entry which requires potential home owners to save enough money for a down payment.
Although he remained guarded on what percentage this would contribute to the growth of the industry, he reckoned it would be "substantial".
"I don\’t want to be quoted on that because I honestly don\’t know but it is going to be substantial," he said pointing to the continued growth of the pension industry.
It is estimated that demand for housing in Kenya\’s urban areas stands at 150,000 units per year against a supply of 35,000 houses.
Mr Ireri once again called for interventions such as putting in place policies and incentives for developers and home owners in order to meet current and future housing needs in the country.
RBA Chief Executive Officer Edward Odundo said the review of the Act, which was done five months ago, is also set to change the savings culture of Kenyans particularly that of the youth.
"Most of us are too impatient to save long term and we want to access our savings long before we retire. But most importantly, it (Act) will change the way pension savings is achieved," he said.
Mr Odundo hailed the HF/Britak product as a solution that would act as an incentive for people to save for retirement.
"I can now see a scenario where especially young people will want to start saving as soon as they enter the work force," he said of the group that has long been accused for having its priorities wrong.
Saving for retirement in Kenya is voluntary and it has been challenging to convince people to start putting some money aside early on in their lives for this purpose as they argue that they would be too old to enjoy any tangible benefits from the funds.
RBA is however pushing for legislation that will make it compulsory to prepare for retirement. Making it mandatory for all employers to set up pension schemes for their workers over and above the state-run fund, would increase penetration and growth of the industry, it has argued.
On his part Britak Managing Director Stephen Wandera urged the government to amend the Insurance Act to provide for members to use their life insurance scheme funds as guarantee or collateral for housing loans.
His firm will offer a mortgage protection policy to cover the risks of Death or Permanent Total Disability.