Mortgage Finance and Home Improvement Loan Scheme has been designed to assist personal and business customers to purchase, improve existing houses, complete a house under construction provided it is at roof level, buy a plot or construct a house provided such a loan is fully secured by an existing property and the applicant has the financial capacity to repay the loan.
Customers whose regular net salaries are paid directly into their bank accounts by their employers and those who own businesses can be considered for the loan provided that the Bank is satisfied with their repayment capability.
The loan shall be granted under the following major conditions:
- Loan repayment period shall not exceed 20 years for individual borrowers and not more than 7 years for businesses and repayments shall commence within 30 days of drawdown
- Maximum loan amount is equal to 85% of purchase price subject to purchase price not being more than market value for individual borrowers and 75% for businesses.
- For salaried employees, monthly loan repayment amount shall not exceed 30% of take home pay being deposited to the Bank.
- The Bank shall create a legal charge or legal mortgage over the property. This shall be arranged by the Bank’s in-house lawyers.
- Houses offered as security shall be located in areas zoned for city or town status. Such areas include Blantyre, Lilongwe, Mzuzu, Zomba,Mangochi,Kasungu,Karonga etc on condition that the plots where the properties are situated are registered by the Department of Lands and are supported by current title deeds and professional valuations by the Bank’s preapproved list of valuers or outside the cities but secured by property that is within the Cities. The houses being improved shall have approved plans from the City Assembly or necessary approving authorities.
- Interest rate is pegged to the Base Rate for personal applicants and Base plus 4% per annum for businesses. This is subject to review at the discretion of the bank any time but such changes will be communicated to customers.
- All properties/houses offered as security shall be valued by the Bank’s approved professional valuers on the Bank’s preapproved list.
- All properties/houses offered as security are insured under House Owners All Risks insurance including Fire Cover under the Bancassurance Scheme.
- Credit Life Insurance, for individual borrowers, to be arranged preferably under the Bancassurance Scheme.
- Administration fees shall be charged by the Bank and borne by the customer.
The Mortgage Finance and home improvement loan scheme has been designed to assist individuals with regular and sustainable sources of income and businesses to purchase residential properties, improve or complete their existing houses. However the Bank may provide a mortgage loan for such purposes as construction of a house, completion of a house or purchase of plot provided such a loan is fully secured by an existing property and the applicant has the financial capacity to repay the loan. Loan for completion of property which is secured by the same property will be considered where that property has been roofed.
The product is designed to offer a quality service at a profit and foster goodwill between the Bank and salaried/creditworthy individuals or business entities. It is expected that in having assisted this sector, the Bank will have established a relationship to the long-term mutual benefit of both parties. In helping them to realise their aspirations the framework of the mortgage finance has been re-engineered to win more business from the competition as per Product herein.
The purpose of the mortgage finance and home improvement loan scheme is to assist individuals and businesses purchase, complete and improve houses for residential purposes.
- Available to customers whose regular net monthly income is paid directly into the Bank account by the employer.
- Customers operating own business shall be considered provided that the Bank is satisfied with the status of the business which represents the source of repayment.
- Companies, organizations and institutions with sound financial capacity.
- Nonresident Malawian nationals( Malawians in Diaspora who have maintained an account with the Bank for at least six months and have been remitting, consistently, sums enough to cover an installment for the loan amount proposed.
In this regard, the customer will be asked to provide the Bank with account statements for at least three months for their account held abroad.
The repayment period shall not exceed 20 years for individual borrowers and not more than 7 years for businesses.
TERMS AND CONDITIONS
- The Bank shall not accept to take a second mortgage over properties that are already charged to other financial institutions and neither shall the Bank accept to take over a mortgage from other financial institutions unless under exceptional circumstances which shall be considered on a case by case basis. In such cases it is expected that thorough due diligence will be carried out and evidence submitted with the application
- The Bank loan shall not exceed 85% of purchase price subject to purchase price not being more than market value
- Customer’s contribution shall be a minimum of 15% of purchase price. There will be no contribution for home improvement.
- Monthly loan repayment amount shall not exceed 30% of take home pay being deposited to the Bank for applicants staying in rented houses and 35% for applicants staying in own houses.
- Business applicants shall be considered based on their cash flows and financial strength.
ACCEPTABLE PROPERTY LOCATION
Customers shall be allowed to offer as security or purchase residential properties in areas zoned for city or town status. Such areas include Blantyre, Lilongwe, Mzuzu, Zomba, Mangochi, Kasungu, Karonga etc on condition that the plots where the properties are situated are registered by the Department of Lands and are supported by current title deeds and valuations.
Preference shall be given to these areas because of the existence of a housing market making it easier to realise security in cases of default which is not the case with other centres. In addition, the mortgaged property should be in an area acceptable to the Bank for purposes of ease of establishment of discounted fair value in line with ERAM, IAS 39 and IFRS 7 requirements.
Thus even for properties in these centres, finance shall only be available for the purchase or improvement of properties which are not considered to be in the outskirts of the city or municipality.
Request for finance covering properties in the other areas shall be considered on a case by case basis.
APPROVING AUTHORITY AND FACILITY AMOUNTS
The minimum and maximum facility amounts shall be revised periodically in response to changes in the country’s economic environment.
The maximum facility amount shall be:
- Up to 85% of purchase price subject to purchase price not being more than market value.
- Dependent on financial capacity of the borrower
- Applications for these facilities shall be referred to Head of Personal and Business Banking and/or Head of Credit Management Division after ascertaining that repayment of the credit if granted is assured, that all documentation is in order and that the applicant has met all requisite conditions.
- The Head of Personal and Business Banking shall approve facilities of up to MK50, 000,000.00.
- A legal mortgage/charge over the financed property being purchased, completed and renovated.
- A legal mortgage/charge over another property can be taken for purposes of purchasing, building, renovating and completing another property.
- The other (extra) property to be charged should also be in an area acceptable to the Bank as per point 7 above.
- The Legal Mortgage/Charge should fully cover the Bank's exposure and the deeds shall be held by the Bank. The creation of Legal Mortgage/Charge shall be handled by the Bank's Legal Department through Credit Management Division.
- House owners all risks insurance which must include fire cover shall be arranged by the Bank under the Bancassurance Scheme, with the Bank's interest as loss payee fully noted in the insurance policies.
In case of individuals credit life cover shall also be taken, for death and permanent disability with free medical cover limit (of MK12,000,000.00 for the time being (Malawi Kwacha twelve million only). Where customer’s application is for an amount above free medical cover, the customer shall be politely requested to submit a full medical report to enable the insurer work out applicable rate of premium.
- Other alternative acceptable security are:
- Highly tradable securities e.g. Treasury Bills.
- Cash security (in this case lien over deposit account).
- Where perfection of security is delayed, and to ensure that the Bank is protected before permitting drawdown a caution shall be registered including charge documents being in execution mode and consent where applicable obtained.
- In addition evidence of payment of City/Ground rates and tax clearance certificate must be exhibited to the Bank and a copy retained in the Banks records.
- Tax clearance certificate should be demanded only for house purchase facility requests.
- All security to be physically inspected by management before processing of loan applications with a report on form ADV10 securities. All security documents to be physically inspected and scrutinized to ensure legal enforceability.
Management shall also ensure that security is inspected annually till the loan is fully repaid.
Before taking security over property a search shall be carried out to ensure that there are no onerous conditions of title and that there are no other charges registered over the property. To this effect a search is to be conducted at the Lands Registry.
PROPERTY VALUATIONS AND STANDARDS
- Valuations of fixed properties must be undertaken by valuers preapproved and acceptable to the Bank. Whenever there is a significant reduction in property values in the market the Bank may require new valuation reports.
- Where the amount sought is less than 10% of the visiting Managers opinion Market Value then an opinion value from valuers on the approved list will suffice – in this case, there will be no need for a full valuation report.
- All security to be revalued and physically inspected by management annually and prior to downgrading of customers in case of attainment of a non performing status. Security documents is to be physically inspected and scrutinized to ensure legal enforceability. A certificate to this effect to be kept in the security dossier. Any anomalies to be reported immediately to Head, Personal and Business Banking Division with a copy to Credit Management Division.
- The house must be of burnt bricks or concrete blocks and IBR/corrugated/tile roofing.
- In case of leased property, the lease agreement should have a remaining lease period of not less than 18 years. Exceptions will have to be referred to Credit Management Division for dispensation.
- A flat arrangement fee and a commitment fee as advised from time to time shall be recovered before facility draw down but after acceptance of the facility letter.
- Pricing shall be subject to review in response to market trends and the changing economic environment at any time at the Bank's discretion.
- Individual customers resident in Malawi applying for the facility shall complete the loan application form (Appendix I) which shall be submitted together with the following documents:
- Latest copy of the customer’s pay slips which is not more than one month old.
- Employer’s Irrevocable Letter of Undertaking (Appendix II) to continue remitting monthly salary to the Bank so long as the applicant remains in their employment.
- Copy of the employment contract if applicable in which case facility tenor will be aligned to 2 months before contract expiry date or undertaking by employer to apply contract proceeds towards settlement of the loan.
- Individual customers living outside Malawi shall complete the loan application form (Appendix I) which shall be submitted together with latest copy of the customer’s pay slip ( not more than one month old), letter of appointment or copy of the employment contract if applicable in which case facility tenor will be aligned to 2 months before contract expirly.
These can been scanned and e-mail to facilitate speedy application processing however hard copies will be required to facilitate draw down.
Business customers applying for the facility shall submit the following:
- An application letter stating amount and tenor of facility.
- Latest management and /or audited accounts if Limited Company.
- Management accounts or latest bank statements for sole proprietorship or partnership.
- Business registration documents.
- MEMARTs or any founding documents to enable the Bank ascertain applicants borrowing powers.
- Cash flow projections.
- A valuation report of the property being purchased/ offered as security that is less than three years old. The valuation shall only be undertaken by individuals/companies approved by the Bank and authenticity confirmed by the Consultant/ARM.
- Completed form ADV 4 with specific details of identifiable assets such as title (plot) numbers for Landed Property and registration numbers for vehicles etc listed overleaf. All the above shall apply for home improvement except there is no requirement for contribution. However the following are also required:
- Costs and quotations for the completion and improvement (Bill of Quantities) and
- approved plans from the Assembly or necessary approving authorities.
- On receipt of these documents:
- The customer's application shall then be assessed.
- The customer shall be risk profiled per matrices Appendix V.
- If the application looks positive i.e. the applicant is eligible for the facility sought, then the property being acquired/offered must be visited to ascertain its ownership, existence and assess its condition/estimate its conservative value.
At least two members of staff to visit the property, one of them being a member of managementt. A detailed report of the property should be compiled on form ADV10 securities. Thus assessment of the application shall among other things be based on the applicant's financial capability, the value and condition of the property in relation to the amount sought. In case the seller requires an assurance from the buyer on purchase of property pending loan application process, the lending unit may issue an irrevocable letter of undertaking (appendix III) if the loan has been already approved in principle.
DRAW-DOWN OF THE FACILITY
- An Offer Letter shall be issued for acknowledgement by the customer. Among other things the Offer Letter should clearly state that failure to service the facility will lead to repossession of the property by the Bank (appendix IV). The acknowledged sanction letter should be submitted to the Bank together with a signed borrower’s standing order form duly completed.
- The acknowledged offer letter shall form part of security
- Once the Offer Letter is accepted, through Credit Management Division, the Bank's Legal Department shall prepare documents for transfer of property from the seller to the purchaser (Bank's customer) and a legal mortgage/charge over the property being financed. The following documents shall be forwarded to Legal Department through Credit Management Division,
- Original Title Deed
- Acknowledged Offer Letter
- Search Certificate
- City/Ground rates Clearance Certificate
- Evidence of insurance with BIN
- MRA Tax Compliance Certificate
- ADV 10 securities
- Copy approval
In cases where the seller requires a down payment, say 10% of the purchase before executing the transfer, such payment shall be effected by the Bank by utilizing the customer's contribution.
No drawdown before a caution is registered and/or charge documents are in execution mode with consent to create a charge being in place.
- Drawdown before Charge/Legal Mortgage registration to be sanctioned by Credit Management Division.
- Payment to the property seller shall be effected by issuing a bank cheque in favour of the seller to the debit of the customer's mortgage loan account. Such payments shall only be made after perfection of security i.e. completion of the property transfer process, submission of title deeds to the Bank and registration of the mortgage over the purchased property.
- In case of renovating building, completing or constructing a property the funds shall be credited or deposited into the borrower’s account.
- However, in view of the delays associated with obtaining consent to charge leasehold properties, the Bank may on a case by case basis release the payment after execution of the security documents by all the concerned parties. In such cases the Bank shall register a caution over the property in order to protect its position with charge documents at least being in execution mode. Before releasing any funds, service centres must ensure that title is clear, property is fully insured with BIN, City/ground Rates fully paid and up to date and that there is an MRA tax clearance certificate if the customer is buying the property.
- The responsibility of obtaining the consent from the relevant authorities rests with the customer.
- All legal costs shall be for the customer/borrower's account.
The ARM is accountable for monitoring the performance of the customer's loan account and the conduct of it with the Bank.
HANDLING OF NON-PERFORMING DEBTS AND REPOSSESSION OF PROPERTY
Where there is doubt as to whether a loan debt is to be recovered by the Bank, the account shall be classified as irregular and treated in the following manner:
- First default - issue reminder letter to the customer
- Second default - issue second reminder letter to the customer and downgrade account as per laid down procedures.
After 14 days issue demand letter.
Please note that during account downgrading the effect of cancellation/deletion of schedule of repayment is that the interest application settings are also deleted hence no application of interest as a result no auto transfer of interest to interest in suspense accounts is effected.
In this regard, interest is automatically suspended and the accounts downgraded to P8.
Death and Permanent Disability
Upon the death of a customer, downgrading of the account must be made immediately for the outstanding balance. While surviving spouses are treated with sympathy and consideration, the Bank will emphasize the need to maintain contractual or full repayments. In the event of death, interest should be stopped forthwith.
Where the customer was covered for death and permanent disability the ARM shall:
- Complete a Notification of Death form, showing outstanding loan balance (inclusive of interest) at the time of death.
- Obtain a death report/Certificate or Affidavit of death signed by the District Commissioner.
- Complete a Notification of Injury form, showing outstanding loan balance (inclusive of interest) at the time of the injury.
- Obtain a medical examination report/ Certificate by a certified medical doctor.
The documents shall be sent to Marsh Malawi Limited for facilitation of loan clearance. Pay out on claims by Marsh Malawi Limited shall be within 30 days of lodgment of the above documents.
Within 5 working days of the downgrade a form ADV 41 should be forwarded to Credit Management Division with a copy to Personal and Business Banking Division to enable provision. Attached to the copy to Credit Management Division should be a copies of the offer letter, Adv 4, loan application form and utility bills to facilitate litigation/serving of warrants in need. The ADV 41 should stipulate a recovery plan/way forward.
Service centers should not wait for Head Office to chase them to downgrade and suspend interest on non performing loans and overdrafts. They should however not provide for these accounts until authorized to do so by Credit Management Division.
It is however very important that such provision and amendment of risk grade to P9 be made before the last working day of the month in which the instruction is received to ensure that the Bank is not in breach of Reserve Bank of Malawi’s Directives on Asset Qualification.
As at end of March, June, September and December reports on forms QIR should be submitted to Credit Management Division with copies to Personal and Business Banking Division for all substandard debts of MK 50,000 and over by 10th day of the month following the quarter end.
The rest of the non performing debts should be advised under the quarterly return of substandard debts below MK 50,000 by the 20th day of the month following the quarter end.
EXCEPTION TO PRODUCT PROGRAMME
When a lending officer believes that an application for mortgage finance has merit although not conforming to the product programme, the proposal shall be referred to the Head of Credit Management Division through the Head of Personal and Business Banking Division.
OTHER TERMS AND CONDITIONS
- Repayment Mode
- Repayment shall be by Banker's Stop Order/Repayment Schedule to the debit of an existing borrower’s account on monthly basis. The repayments shall cover principal and interest payments which will be debited to the borrower's account through Commercial Lending module software.
- Bullet payment from Deposit/Savings accounts provided they are formally pledged/liened to the bank.
- Repayments inclusive of interest will commence as follows:
- for facilities drawn between 1st and 20th should commence within the same month.
- for facilities drawn between 21st and 31st should commence the following month.
- Reconciliation and Reporting
Computer generated reports shall be produced monthly for credit control purposes.
- Accounting - Accounts shall be accommodated on the Branch computer systems.
- Revenue - The product is an instalment loan with equal repayments every month. Interest revenue is derived throughout the life of the loan on a decreasing basis. Interest income is computed based on the equal monthly instalments.
- Risk Management - Management of risk will cover the following:
- Liquidity Risk - The whole concept of which liabilities should fund what assets has not been developed by the Bank. However, the risk is minimised by the fact that our deposits are very stable and the ratio of our credit to resources is at acceptable level.
- Operational Risk - Operational Risk is defined as loss resulting from inadequate or failed processes, employees, and systems or from external events.
The operational risks shall be mitigated as follows:
- System failures – proper transactions, regular documentation and account reconciliation by lending teams.
- Internal processes – strict adherence to agreed turnaround times and properly defines roles in the work chain.
- Fraudulent documents – lending teams to obtain original documents from the customer and verify authenticity.
- Employees – to be well trained in credit management and strictly abiding by the checklists provided for guidance in processing loans
- External events – abide by changes in the regulatory and control environment within the financial industry.
- Authorisation - The following considerations will be taken into account before a decision to approve or reject a loan application is arrived at:
- Ability to generate income and repay loan – enough to meet loan obligation.
- Account history – good conduct of account and borrowing repayment history.
- Personal stability – length of service on current job and movements from one employer to another.
- Interest - Interest to be paid monthly.
- Set-Off - The Bank may at any time at which there is a default, exercise its right to set off any outstanding sums against any funds held in any other account of the customer.
- Early Repayment - No penalty charge.
- Credit Scoring - For individual borrowers credit scoring shall be done as per appendix V attached.Head Office Personal and Business Banking and Credit Management Divisions shall approve applications with a credit score of 30 points or less and may consider applications with a credit score in excess of 30 points which carry the lending officers unreserved recommendations.
- Joint Accounts - For obvious reasons, House loan facility not permitted. The Bank cannot create a joint charge. Where there are disagreements and when the two disband ownership becomes an issue difficult to resolve. Notwithstanding the above, loan repayments can come from a joint account subject to written authority of the other joint party.
There will be cases when customers are unable to repay their loans due to a change in circumstances. In such cases, the entire loan balance may be at risk and the Bank will have to take legal action to recover the debt hence the need to get all procedures right.
No specific regulatory approval is required for the product.
The lending conforms with the Banking Act.
However, there is need to comply with Delinquent/ Non performing accounts handling stipulations not just to enhance the Bank’s own early recovery chances but also to avoid breaching Reserve Bank of Malawi Asset Classification Directives and IAS 39 requirements.
PRODUCT PROFILE REVIEW
This product profile is subject to review every three years or when circumstances demand so.
Approval is by the Credit Committee.