Unlock affordable housing with new mortgage solutions

An apartment under construction in Eldoret town. FILE PHOTO | NMG

Kenya’s home construction industry has evolved rapidly, bringing in new players to fill the void of providing long-term funds, helping to realise the dream of homeownership for many. Simultaneously, under the Affordable Housing Agenda, the government has emerged as a key player, facilitating land provision and mobilising funds for mass housing projects.

Lenders have been entrusted with overseeing the disbursement of mortgages to prospective homeowners under the government-led scheme.

This effort is being carried out through the Kenya Mortgage Refinance Company (KMRC) providing avenues to single-digit interest mortgage solutions.

The push for longer-term, single-digit interest mortgages has also led to the emergence of new mortgage options, such as tenant purchase, rent-to-own schemes, outright purchase, and borrow-to-build models, also known as construction loans.

Furthermore, to simplify the homeownership journey, lenders have streamlined the application for home construction loans, from identifying suitable land to managing construction.

Construction loans are tailored to meet the needs of landowners who aspire to build. Unlike traditional loans, these funds are disbursed based on the advice of building professionals who oversee the project, including architects and quantity surveyors, with payments made in stages corresponding to different construction phases.

This means that the role of a lender has expanded to include non-financial services, such as conducting due diligence during land purchases and ensuring compliance with building laws and contractors to guarantee quality assurance throughout the property development from start to finish.

Lenders hire professionals to inspect the properties before releasing payments, ensuring that the work is of high quality and completed on time. Every lender is responsible for ensuring that stage valuations are completed.

This ensures that borrowers receive what they paid for, on time, in good quality, and as agreed. It also ensures that the project’s value increases over time and that it has all the necessary certificates required by law.

This includes official confirmation that the building plans have been approved and that the Bill of Quantities (BQs) has been prepared by an independent and qualified quantity surveyor.

This marks a departure from past practices, where loan disbursements heavily relied on the relationship between the borrower and the lender.

As a result, more people can now obtain construction loans by simply pledging the land on which the new house will be built as collateral.

This allows low and middle-income earners to secure mortgages without having to make a down payment.

It is critical to emphasise that successfully navigating the construction loan route to homeownership requires planning. It begins with researching financial institutions that offer the best construction loan rates and terms.

It is also essential to work with reputable professionals to ensure efficient implementation.

The writer heads mortgages at Absa Bank Kenya.