NCBA Bank is aggressively marketing a housing product that allows customers to walk into a branch and walk out with a fully financed home project, but behind the attractive promise lies a serious financial risk that many borrowers may not fully understand.
The bank offers financing of up to 100 percent and, in some cases, 105 percent of the construction cost, meaning customers can take on massive debt without putting down a significant deposit of their own.
The offer is being presented as a solution to the challenges that prevent many Kenyans from building homes. NCBA promises to provide financing, house designs, approved contractors, construction management, and the completed house through a single package.
For families struggling to save for years in order to raise a deposit, the proposal can appear to be a shortcut to home ownership.
What is less visible in the marketing is the reality that a borrower who finances the entire project starts with little or no equity in the property.
From day one, the bank’s money is heavily invested in the house while the customer carries the responsibility of repaying the debt. If property prices fall, construction costs increase, or interest rates rise, the homeowner can quickly find themselves trapped in a difficult financial position.
The biggest winner in such an arrangement is often the lender. The bank’s interests are protected by the property itself, while the borrower bears the consequences of any financial shock.
A lost job, a struggling business, unexpected medical expenses, or a slowing economy can make repayments difficult.
Yet the debt remains. When repayments stop, the bank has the legal power to repossess and auction the property to recover its money.
This is not a distant possibility. Property auctions are a regular feature in Kenya’s financial sector. Behind many of those auction notices are individuals and families who once believed they were securing their future through home ownership.
The same institution that financed the project can ultimately become the institution selling the house to recover outstanding debt.
The structure of NCBA’s housing package also concentrates significant control in the hands of the lender. The bank finances the project, approves the builders, oversees construction, and holds the property as security.
Meanwhile, the borrower remains responsible for every shilling borrowed regardless of whether challenges emerge during construction or after completion.
Housing finance plays an important role in helping people acquire property. However, products that encourage borrowers to take on debt equal to or greater than the value of a home deserve serious scrutiny.
The promise of walking into a bank and leaving with a fully financed house may sound empowering.
The harder reality is that borrowers who take on such obligations are also walking into years of debt, with the constant risk that failure to keep up with repayments could end in a public auction and the loss of the very home they set out to build.
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