When the seller chooses a lender for you

By FRANCIS AYIEKO

In the artist’s impression of a new housing project coming up on Mombasa Road, the name of a mortgage provider is prominently displayed alongside the project’s particulars.

This is not an uncommon sight. Walk to any construction site and chances are that you will see the name or names of mortgage providers displayed alongside the project’s details.

The same trend is also seen in media advertisements where major housing projects have made it a common practice to mention mortgage providers that potential buyers can get a home loan from.

New trend

Call it smart marketing if you may, but this new trend where developers are finding lenders willing to provide financing for an eventual sale even before they put their apartments or maisonettes on the market is fast catching on.

For a developer, working with a preferred lender on a new housing project is mainly aimed at saving them from wasting time on buyers who cannot find financing on their own.

It is a trend that has been born out of a mutual benefit for both lenders and developers. To lenders, developers are a ‘natural’ distribution channel for credit. It helps developers sell houses quickly, repay their own debt, and redeploy capital in other profitable projects.

It also gives the developer an incentive to minimise costs and helps maximise the speed of mortgage origination. This relationship starts with the banks providing construction loans to private developers. Through such loans, banks not only get developers as clients but also buyers for the houses whose development they financed.

Generally, this trend where developers “market” mortgage products of some firms at the construction site or in newspapers should be a good thing for both the developer and mortgage taker.

No hustle

One, it saves the buyer the hustle and time of walking from one bank to another after identifying a property. Secondly, it can guarantee the buyer a good deal, particularly if he or she has been referred to a lender by the developer. The buyer can get a discount, and speedy processing to boot.

Nowadays, mortgage firms organise property tours to give potential buyers an opportunity to see the properties available on the market, their location and prices. Usually, the properties visited are those financed by the lender organising the tours.

Buyer’s options

Those who sign mortgage contracts during such tours are normally given special offers that could be a one per cent or two per cent reduction in interest rates as well as concessionary closing costs.

Such partnerships, however, have a tendency to limit a buyer’s options to only those lenders working with the developer. What if they are not the cheapest financiers in the market?

Luckily, the lender can only recommend to the buyer who to borrow from. The buyer can still apply for a mortgage with another lender if that does not work.