The housing loans that commercial banks offer with the support of the Public Corporation for Housing (PCH), colloquially known as Iskan loans or PCH loans, are engineered according to a smart financing formula that is advantageous for borrowers but nothing short of complicated. When a first time home buyer with Lebanese nationality and residency has been approved for a PCH loan, and has deposited their 10 percent down payment for the home purchase, they can access 90 percent of the approved loan amount at the participating commercial bank that has agreed to issue the loan. This bank will wire the remaining 10 percent of the loan to the PCH, where this amount is held in an interest bearing account to the benefit of the borrower.
Under the tripartite loan agreement between borrower, bank and PCH, the borrower will then be responsible for paying down the principal of the loan to the issuing bank, and must do so during the first half of the agreed total loan period (up to 30 years). In parallel to this, the PCH assumes the responsibility for paying the monthly interest that the bank is owed on the loan amount.
As the borrower thus decreases his bank debt to zero through installments over the first half of the loan period, he incurs a new, smaller debt to the PCH which serviced the loan’s interest rate component on his behalf. This debt plus 3 percent is what the borrower has to settle with the PCH in the second half of the loan period. In terms of the required monthly installments, the borrower will have to pay far less in the second half of the loan period when compared with his obligations in the first half.
The financing formula makes great sense because the interest rate component on a long term loan becomes a heavier cost burden the longer the interest applies. By receiving the PCH’s support in settling the interest on the principal loan within the first half of the financing period, the borrower is provided with a much more affordable total loan cost.
As PCH director general Rony Lahoud says, the borrower’s total payable amount on a borrowed principal of $180,000 shrinks from over $300,000 in a conventional 30 year loan contract to less than $250,000 in a PCH contract, at the same interest rate example of 4.67 percent. Additional financial advantages for borrowers comprise the exemption from fees that amount to about 7 percent of a unit’s value, according to Lahoud, who claims that the total benefits of a PCH loan at the upper end of the available range can sweeten a move into a new home with financial cost savings to the tune of $70,000 or $80,000 when compared with a conventional bank loan.
However, the PCH loan will not meet every need and comes with a set of eligibility requirements. The loan amount ceiling has been raised twice since the PCH formula was introduced in 1999 but the current ceiling of $180,000 per loan still restricts the paid out credit to a maximum of $162,000 under the 90 percent disbursement rule. This rule reduces the repayment installments that borrowers have to make in the second half of the loan period, but the financing cap overall does not give young families room for large jumps.
[pullquote]Financing an apartment in Beirut via a PCH loan would usually be out of the question[/pullquote]
The PCH loan range allows borrowers to finance home refurbishing/restoration, as well as use funds for the completion of at least half finished apartments or the expansion of an existing home. However, when it comes to the typical first time buyer ambition of acquiring a finished, brand new apartment, choices will not be vast even a good distance away from the economic fleshpots of Beirut, given the prices asked for new apartment units even in somewhat affordable areas where a couple might seek to live and commute from. Financing an apartment in Beirut via a PCH loan under the current per square meter property prices in the capital would usually be out of the question, as Lahoud concedes.
The PCH loan is not made easier by carrying borrower qualifications that include minimum age (above 21), employment duration (2 years) and maximum age (65 at conclusion of loan repayments), plus a monthly family income ceiling of 10 times the $450 monthly minimum wage on top of limitations for the size of the financed dwelling (200 square meters).
Not to forget Lebanese nationality and the required proven ability to service the loan payments from a family’s income. One bank’s sample Iskan loan calculator illustrates this important practical restriction by throwing out an $80,000 borrowing limit for a 20 year loan and monthly repayment dues of one third of the applicant’s income when the applicant puts in a monthly family income of $2,000.
As sensical as the PCH loan’s social and economic eligibility requirements are from the perspective of tailoring this home finance option for the presumed primary target group of average-income couples and young working parents, it is difficult to perceive the scheme’s host of conditions and specificities as unbureaucratic. It must also be recognized that the loan criteria bar access to marginal earners who may be the most in need of dignified yet affordable housing in a functioning community.
Putting aside the conceptual restrictions, organizational challenges for the PCH and the various other barriers that young homebuyers face in the proverbially uncertain Lebanese economy, it seems all the more remarkable that the complex scheme has served almost 67,000 households in their home finance needs to date.