In most developed countries, building a house is a capital-intensive venture which requires a well-developed plan and readily available finances. This ensures the construction starts and is completed on time and the quality of the building is generally not compromised.
In Uganda as in many developing countries, however, most people who decide to build their own homes do so incrementally overtime using business income, personal savings and or small unsecured loans. As a result, the entire exercise tends to take a very long time leading to cost overruns, construction delays and extended periods where the house is left unfinished and this ultimately affects the quality of the end product.
But what are the alternatives, one might ask? After all, getting formal bank financing in a country like Uganda can be challenging and very expensive if you are lucky enough to get it.
Many Ugandans might be shocked to learn that bank financing for home purchases, construction or renovations is not as hard as most people think. And paying a mortgage can be almost the same as monthly rent. How can this be possible?
First of all, it is important to remember when you consider approaching a bank for credit, timing is everything. The period when you apply for a loan can be a major contributing factor as to whether you will get the facility or not.
In a high interest rate environment, the chances of getting a loan are dramatically reduced. This is because banks are reluctant to lend, knowing it is a lot more difficult or almost impossible for people to pay back the money they borrow.
In Uganda right now, the situation is the complete opposite and that is because in a bid to encourage lending and stimulate economic growth, Bank of Uganda has over the past 15 months continuously lowered the CBR to a point where it is at the lowest level ever (at 9.5 per cent).
Most banks, especially the larger ones, will follow the Central Bank’s lead and also reduce their prime lending rates (PLR). As a result, the cost of credit will be cheaper and banks more willing to give out loans because they know borrowers are better positioned to pay back the money.
Secondly, borrowing can be considerably more affordable if you do your homework and carefully select not only the bank that best fits your profile, but have also rationalised the exact nature of the loan that suits your need? Why? Because despite the CBR being a benchmark figure of the cost of money, not all banks offer the same lending rates.
A quick perusal of the BoU commercial banks tariff guide published every quarter demonstrates this fact. Stanbic Bank Uganda, for example, has a PLR of only 17.5 per cent, the lowest on the market yet there are other banks that remain as high as 25 per cent. Why the difference? The bank follows a deliberate policy of matching movements of the CBR with revisions to their PLR. Not all commercial banks in Uganda do this.