Central Bank amends mortgage finance rules for low earners

The Central Bank of Egypt has amended its 2014 mortgage scheme in what is says is an effort to allow more low and middle income Egyptians to benefit from long-term financing at low interest rates.

The new rules, announced in a February 24 directive, lower mortgage interest rates to 5 percent for people earning up to LE1,400 per month. They also create a new-segment of “above average” earners who are qualified to apply for financing under the scheme — individuals earning LE15,000 per month or families earning LE20,000 per month will be eligible for mortgages with 10 percent annual interest.

The legal minimum wage is set at LE1,200 per month for public sector workers. There is no minimum wage for the private sector.

In 2014, the CBE allocated LE10 billion to finance mortgages for low-cost housing projects, depositing the funds with banks at a low interest rate, and allowing banks to reloan them to qualified buyers.

Under the 2014 regulations, Central Bank-supported mortgages for low-income housing units would be set at 7 percent interest for 20 years, while middle-income financing options would carry 8 percent interest. 

In addition to creating new income categories eligible for 5 and 10 percent loans, this month’s amendments to the bill retain the 7 percent and 8 percent interest levels for people who fall between these extremes. The 7 percent interest loans will be made available to people with low incomes, but the CBE directive does not specify a particular monthly income, leaving that to be determined by the mortgage fund. Individuals earning more than LE8,000 per month and families earning LE10,000 per month will be eligible for 8 percent loans.

The 10 percent interest mortgages for “above-average” earners will be available to finance housing units worth up to LE950,000, slightly less than four times the annual income of a family earning LE20,000 per month. Mortgages with an 8 percent loan can be used to purchase homes worth up to LE500,000, or slightly more than four times the annual income of a family earning LE10,000 per month. The maximum mortgage that can be issued to low-income families eligible for 5 percent and 7 percent loans is left to the discretion of the mortgage fund.

The Central Bank also says it will allow banks to cover the risk of lending to people with difficulty proving their incomes through group insurance policies, the costs of which are to be borne by the borrower. This may help to relieve one of the primary difficulties cited by advocates for low-income housing: many of Egypt’s working poor are unable to prove their income due to working in the informal sector, which amounts to around two-thirds of the country’s workforce.

Egypt suffers from a dire shortage of low- and middle-income housing. Private developers focus on more profitable high-end properties, while government-led low income housing projects have so-far failed to deliver the promised number of units, and in many cases remain prohibitively expensive for low-income families. As a result, an estimated 40 percent of people in Cairo live in informal settlements.