Sorry, you don’t qualify

Two years ago, a new developer walked into a bank in Nairobi looking for a loan to construct a commercial building in Upper Hill. He was given a long list of requirements.

“It was mind-boggling. It was difficult for me to see just how I could get the loan with all those requirements.”

He gave up and the project, which was yet to commence, lay idle for two years as he tried to figure out how to finance it.

Four months ago, however, his hopes were revived after meeting a person who has been in the mortgage business for almost two decades.

The expert helped him to get an equity partner, one bulk buyer (the buyer is taking five of the 21 floors envisaged), and they have been able to negotiate loans with multiple financiers who are now willing to put large sums of money into the project.

Like him, many new developers in Kenya find it difficult to get their ideas off the ground because of lack of funding.

Sometimes their loan applications are turned down, not necessarily because the banks do not want to lend them money but because they did not package the information well enough to match the bank’s requirements.

The same case applies to individuals seeking to take a mortgage. For most Kenyans, the mortgage process is not only shrouded in mystery, it is also long and tedious.

In many cases, the “mystery” is because of lack of information on what banks require of you to qualify for a home loan. This might be because Kenya’s mortgage market is still small.

In countries where the mortgage sector is well-developed, getting a mortgage is a straight-forward affair that takes a short time even for first-time borrowers, thanks to the existence of mortgage brokerage services.

A mortgage broker is a go-between between the borrower and the lender (usually a bank), who negotiates the loan on your behalf.

A mortgage broker will do the legwork, researching products on the market from the hundreds available, and then support you through the application and settlement process.

A broker shops around for you, searching the range of loans available from multiple lenders quickly to find you the right home loan for your needs.

The broker also provides you with one central point for mortgage information and will talk you through the process. The broker is an intermediary.

The importance of a broker is because of the fact that banks have different guidelines, and unless you are familiar with them, you can fail to get a loan — just because you have not crossed a “t” or dotted an “i” in your application.

Mortgage brokers exist to find a bank or direct lender to loan an individual looking for funding.

Traditionally, banks and other lending institutions have sold their own products.

However, as the mortgage market becomes more competitive, the role of the mortgage broker has become popular.

In most developed mortgage markets such as Canada, the United States, the United Kingdom, Australia, New Zealand, and Spain, mortgage brokers are the largest sellers of mortgage products for lenders.

The World Bank says in a recently-published housing policy book that mortgage brokers are becoming a more important distribution channel in the new European Union member countries, especially the Czech Republic and Poland. In Asia, India has embraced the practice.

“They (mortgage brokerages) remain underdeveloped in most emerging economies, but should take more importance as mortgage markets grow in size and competitiveness,” says the World Bank.

So, is Kenya’s home loan market ready for mortgage brokerage services? “It is,” says Mr Collins Kowuor, the chairman of the Institution of Surveyors of Kenya citing the increasing number of banks and financial institutions providing mortgage services and the burgeoning mortgage products.

“The level of investment in real estate is also increasing. All these factors make it difficult for investors to know the best mortgage products to suit their income level,” said Mr Kowuor.

“When you come to us, we look at what your requirements are and tell you what the banks would require of you. We then package it as a ‘bankable proposition’ and then advise you on the best financier you require,” says Ms Caroline Kariuki, a mortgage broker.

She adds: “We are not in competition with the banks but complementing their work.”

According to Ms Kariuki, there are many people who want mortgages but do not know where and how to start because they have inadequate information about the market.

“Many good projects never come to fruition because customers do not have funding. Many people get stuck when asked by financiers to show evidence of profits or ability to repay. The financiers respond by putting aside their proposals or applications, thereby delaying the whole process. What such people require is proper information and guidance on how to ‘package’ their application,” she says.

According to Ms Kariuki, the main challenge for mortgage applicants is that banks ask for piecemeal information.

Brokers would help overcome this problem since they understand what different banks require from the customers.

They collate all the information and forward it to the financier and do all the legwork, thus shortening the time an application takes to be approved.

A broker can also get you the best deal from a financier.

Forging a relationship with a broker can make all mortgage-related decisions easier.

Another thing worth noting is that brokers are not useful for first-time home buyers only.

Your financial circumstances can evolve over time, and so can the products and services available for you to choose from.

You may want to fix part of your loan, refinance, or perhaps buy an investment property.

Mortgage brokers can help you purchase your first home, but can also be valuable to you again in the future, whether to help you with information to finance your next home, buy an investment property, or refinance your existing home loan.

According to Mr Kowuor, mortgage brokerage is likely to increase demand for products and properties because of the ready information such firms provide.

Mortgage brokerage services are known to open up mortgage space. Through the advice and “good deals” they make on behalf of clients, they tend to help bring mortgages to the lower end of the market, thus enabling many people to qualify for mortgages.

And the downside?

Some industry players are doubtful that Kenya’s mortgage industry will accept brokerage services with enthusiasm.

“Our market is conservative. My feeling is that it might take a long time for the market to accept mortgage brokerage,” says Mr Paul Ngotho, the managing director of Ngotho Property Consultants.

Mr Ngotho says mortgage brokerage will help deal with the imperfection in Kenya’s property market, which manifests itself in the form of limited market knowledge or information.

“Most people usually go to only one banker when seeking to take a mortgage. This limits their options because they don’t know what the other players are offering,” he says.

According to Mr Ngotho, mortgage brokerage would level the playing field for the benefit of borrowers.

“It will no longer be a take-it-or-leave-it situation,” he says, noting that mortgage brokers should have started operating in Kenya many years ago.

However, an entrepreneur who unsuccessfully tried to establish a mortgage brokerage company about 10 years ago says the market is not yet ready for such services.

There is also the question of whether the law in Kenya supports the existence and operations of a mortgage brokerage company.

According to Mr Kowuor, the Estate Agents Act provides for negotiation of mortgage by registered estate agents between clients and mortgage service providers. However, there may be no law governing the act of just informing clients about what is available in the market.

“It may also be instructive to know that brokerage and agency are more or less the same thing except that one is an American term and another British. Of course the Companies Act should also guide such operations,” he added.