The Treasury has shot down a proposal by MPs to increase their mortgage entitlement by Sh5 million.
(Also read Uhuru defends move to pay tax for MPs )
MPs, through the Parliamentary Mortgage Committee, had sought to push the entitlement to Sh20 million from the current Sh15 million, citing the steep rise in property prices.
The Parliamentary Management Scheme Fund Regulations, 2011, that Finance minister Uhuru Kenyatta gazetted last Friday snubbed the proposal leaving the status quo intact.
“The revision was intended to create a larger revolving fund for a larger parliament expected after next year’s General Election, besides factoring in the prevailing property prices,” said Mr Peter Maikoki, Parliament’s head of mortgage and car loans department.
Creation of new constituencies and election of senators and women representatives under the new Constitution are expected to inflate the number of MPs to at least 417.
“That number would inevitably require that the fund, which stands at Sh2 billion, be increased to around Sh8 billion if it is to remain operational,” Mr Maikoki said.
The Accountant General, whose office is charged with disbursement of the funds, declined to comment.
The fund currently benefits MPs and the Parliamentary Service Commission (PSC) staff. Employees of the PSC are entitled to different amounts of car and home loans based on their job groups. According to the schedule, all MPs are entitled to Sh15 million followed by the Clerk of the National Assembly and his deputy who get Sh10 million each.
Directors and heads of departments are entitled to Sh8 million each. The lowest ranked employees under the PSC — office attendants — get Sh2.5 million while drivers and clerical officers get Sh2.8 million.
Loans from this kitty are repaid at an interest rate of three per cent per year, a huge disparity from prevailing market rates offered currently standing at more than 15 per cent.
The low-interest rate is the result of the exemption of PSC members from paying the benefit tax that is pegged on the average Treasury Bill rates for the previous six months.
Former Kabete MP Paul Muite criticised the mortgage fund as a selfish scheme that only adds to the taxpayers’ pain.
He said: “It is wrong for MPs to get such subsidised loans in the first place and the proposal to increase the fund’s allotments only makes it worse.
They, like ordinary citizens, should borrow from the banks and feel the pain that everyone is getting from the outrageous interest rates.”
Mr Kenyatta has, however, given legislators, who did not have title deeds to secure the loans, a lifeline by allowing them to split their funds into two – to acquire and subsequently develop the property.
Previously, the fund was only available for the purchase of an existing building or to develop a piece of land already owned by the applicant.
“A loan for the development of residential property may be granted…in two instalments, for the purchase of land at which the residential property is to be developed and for its development,” reads the amendment introduced in the Government Financial Management Act.
Parliament’s mortgage office said the amendment should help eligible members who cannot afford the high cost of land.
“The requirement that every applicant must present proof of ownership of land has been a big handicap to some members who proposed that the mortgage facility be split into two,” said Mr Maikoki.
Other amendments to the law included one that caps the amount of money each member can be allotted with the first batch – to be used to buy the land – fixed at not more than 40 per cent of a member’s maximum entitlement.
Parliamentarians have also won an extension of the period by which they must have finished repaying loans and will now service them until two months to the end of their term.
Their counterparts doubling up as members of the PSC have an extra six months grace period to clear their loans.
The new mortgage scheme also gives Nairobi preference over other towns. Borrowers intending to develop homes within the metropolitan area will get up to 90 per cent financing of the property value while those investing in other parts of the country will get 80 per cent.
Over the past two years, the real estate industry has led other sectors of the economy in borrowing from commercial banks, with the amount tripling as developers took loans to invest in the lucrative homes market.
Recent data from the Central Bank of Kenya, however, shows that only 2,255 new accounts were opened in the 13 months to June, a relatively slow pace of growth that signals an aversion for home loans.
By the end of the period, loan accounts stood at 17,304 compared to 15,049 in May 2010, pushing the outstanding aggregate value up by 28 per cent to stand at Sh78.4 billion.
The implication is that more Kenyans are now opting to use cash payments, savings, personal loans and Sacco credit to finance home purchases as opposed to taking up mortgages.
A recent increase in the benchmark Central Bank Rate to 16.5 per cent has seen most banks increase their base lending rates to an average of 24 per cent, pushing up mortgage rates.
This has further fuelled fears that the cost of home loans will soon be beyond affordability for many citizens.
“We revised our mortgage rates upwards in step with the increase of our base lending rate to 19 per cent, an eventuality we could not avoid,” said Mr Joram Kiarie, the director in charge of mortgage business at KCB.
Currently, Kenya has about 15,500 mortgage holders with the average size of loan standing at Sh6.6 billion.
Given this unforgiving mortgage environment, prospective home owners with in-house loan arrangements are emerging as the biggest winners.
Top on the list of winners are government employees who are enjoying the benefits of a highly-subsidised housing programme for civil servants that comes with an interest rate of five per cent.
The low pay that results in low take-homes after loan deductions has, however, barred many civil servants from taking up the offer.
Government employees can access up to Sh5 million at a rate of five per cent for a monthly instalment of Sh35,000.
Kenya’s annual demand for houses is estimated at 200,000 units whereas the market can only supply 30,000 units, leaving a shortfall of 120,000 per year.
The shortfall is more severe in the lower sections of the market.