Mortgage Refinance Institutions Bill 2025: Will interest rates reduce?

The concept of mortgage refinancing is not new in Africa. Just a few months ago, the Tanzanian Mortgage Refinance Company published a tender seeking a Lead Arranger and Sponsoring Broker to issue a second Medium Term Note Program.

One of the most notable features of the KMRC loan is its exceptionally low fixed interest rate, which is maintained below 10% for the entire loan term of up to 25 years. This aspect has led many to speculate whether a similar initiative could transform the Ugandan housing market, making home ownership attainable for a broader population segment. The central question remains: Will the proposed system replicate KMRC’s attempts in Uganda?

KMRC exemplifies a progressive capital markets strategy by enabling banks to offload mortgage loans from their balance sheets. When financial institutions sell these loans to KMRC, they can reinvest the capital to issue new mortgages. This process, often termed enhancing the "velocity of money," plays a crucial role in creating a more dynamic and responsive economic environment, which could greatly benefit Uganda's financial landscape.

For the Mortgage Refinance Institutions Bill 2025 to gain widespread acceptance and trust in Uganda, it is essential to communicate clearly about the sustainability and reliability of this model. Both borrowers and potential investors need reassurance regarding the long-term viability and stability of lending at such favorable interest rates. Transparency about the various sources of funding for these competitive loans is crucial, as it will help foster greater confidence in this innovative home financing initiative.

The proposed Bill must reconcile provisions established in the existing Mortgage Act of 2009 with the new legislation. A thorough review of regulatory frameworks is necessary to prevent potential overreach while also addressing systemic risks that are not primarily tied to an obsession with prudential regulation. Engaging stakeholders from various sectors will be vital in refining the Bill to ensure it serves the public's interests while promoting a stable and sustainable housing finance market in Uganda.

I have received information from various sources indicating that, as a strategy to generate funding for the entity, there are plans to “securitize” mortgages and transform them into tradable mortgage-backed securities. This innovative approach holds significant promise; however, it also underscores the urgent need to address the systemic risks that will arise due to our chaotic land administration, which has long been marred by inherent fraud.

To ensure the Ugandan refinancing company can navigate these challenges effectively, it should be vigilant in avoiding low qualifying mortgage amounts. Given the current landscape of ever-increasing property prices driven by rising construction costs and the artificial inflation of land values, prospective borrowers may find themselves in a position where they need to seek loans that exceed what the Ugandan mortgage refinance company is able to provide.

Insights drawn from international case studies, particularly those analyzing the financing models of Egypt's finance company, suggest that the Ugandan mortgage refinance company could benefit from exploring innovative financing options specifically designed for residential developments. This could include the implementation of flexible loan structures and attractive incentives that promote sustainable building practices. By embracing these strategies, the company could not only enhance financial sustainability but also stimulate significant growth in Uganda's residential sector.

Mr Louis N. Kizito is a lawyer.
@LouisNkizit