Mortgage refinancing is the key to unlocking affordable housing

The shortage of urban housing is increasing day by day. There is no doubt. The shortage itself is a function of supply and demand. Demand side constraints are motivated by the issue of affordability, while supply-side constraints are motivated by funding issues.

The government and the private sector have deployed both sets of constraints. For the record, it is becoming increasingly evident that because of the hefty down payment that involves the mbadive supply of affordable housing, the supply constraints are better handled by social means – which are usually at the doors of the government.

Indeed, the government has tried to launch a number of cans on other occasions. To begin with, there is the National Housing Corporation (SHN) whose primary mandate is to play a leading role in the implementation of government housing policies and programs. Well, let's not go further.

Secondly, in May 2014, a committee that had been formed (by the National Treasury) to explore ways to improve private credit and mortgage financing in Kenya, 13 outsourced recommendations covering a wide range of issues.

One of their best-known recommendations was the introduction, in July 2014, of the pricing formula "KBRR + K" for commercial banks on variable rate loans, which was canceled by the Banking Act 2016. Specifically, with respect to mortgage financing, the committee recommended that the government facilitate lines of credit for major housing development projects for low-income home-owner buyers. The premise here is that commercial banks may not be able to effectively provide the capital required for such purposes.

There is a bit of context to that. The modern bank is based on Fractional Reserve Banking (FRB), where commercial banks deposit deposits, usually short-term and non-sticky, with central banks (in the form of minimum reserves). Conceptually, because commercial banks, in their role of intermediation, have to borrow (for example) a 90-day money and lend for a large part of the time. longer periods (usually longer than 12 months), they face significant risks of maturity.

Premiumization is designed to compensate for the maturity risks and other risks often badociated with credit, liquidity and revaluation.

Offer homeownership products, usually via affordable mortgages or not. a bank should extend the term of its loans to more than 10 years, a level that significantly increases the risks of maturity beyond its ability to manage.

It is there that government intervention is still sought after; in part because it has unique abilities to absorb such risks.

That's why I find the latest National Treasury effort to establish a window for a highly commendable mortgage refinancing company. The announcement by the National Treasury in April 2018 of the creation of Kenya Mortgage Refinance Company may have triggered the latest government intervention.

Indeed, the Treasury Secretary's proposals, contained in the 2018 Finance Bill, The First Mortgage Refinance Company Can Help Make Affordable Housing by Playing Two Key Roles: (i) l & # 39; absorption of maturity and credit risks from commercial balance sheets through a refinancing window, thus helping to mitigate prices; and (ii) the provision and provision of long-term finance for its own social housing lending or retrocession activities. It's a good start.