Mortgage Special Report Quarter 1 2014
Take-up of 1m mortgages unrealizable without rate cuts or government intervention
• At current interest rates, half of all Kenyans living in urban areas could not afford the loan repayments for a house
priced at Sh700,000
• The biggest blockage to mortgage take up remains high interest rates from the main lenders
• The Deputy President has called for the country to achieve 1m mortgages, up from today's 20,000
• However, the main mortgage market players have all maintained mortgage rates in the 15 to 18 per cent range, with
most rates remaining unchanged in 2014
• KCB has unveiled a promotion offering a rate of 14.5 per cent until June 2014
• Commercial Bank of Africa cut its rates from 17 per cent to 15 per cent, fixed for 4 years
• Barclays Bank reduced its rate from 15.5 per cent to 14.9 per cent
• But Standard Chartered Bank remains the lowest cost lender at an unchanged 13.9 per cent
• Options to achieve affordable mortgages now rest on new policies and funds
The Mortgage Company and Hass Consult today unveiled the Mortgage Report for the first quarter of 2014 showing that
commercial banks have substantially maintained their unusually high borrowing rates, despite the growing impact on the
housing market and on Kenya.
The Deputy President has now called for an enabling environment to allow Kenya to achieve one million mortgages, up
from today's 20,000, but the rates of most of the main mortgage lenders remained unchanged, said Ms Carole Kariuki,
Managing Director of the Mortgage Company.
Despite some minor adjustments and short-term interest rate discounts, Standard Chartered Bank remained the lowest
cost lender at an unchanged 13.9 per cent rate.
The most expensive mortgages are offered by Consolidated Bank at 19 per cent, while Chase Bank is the only bank to
negotiate counter rates with individual clients in a range between 16.5 per cent and 19 per cent.
“With the mainstream lenders hanging on with such tenacity to such high margins on their lending, the delayed take-off
in Kenya's mortgage market is distorting the country's housing range, discouraging private developers, and locking out all
bar the elite from home ownership,' said Ms Kariuki.
“In the absence of any more constructive approach from the commercial lenders, mortgage take-up now depends on
government intervention, either through supporting mortgage backed securities to stimulate the secondary mortgage
market, or through the creation of housing funds and even mortgage subsidies.”
Data compiled for the Mortgage Report shows that just 1 per cent of urban Kenyans can currently afford the mortgage
repayments for a house priced at Sh5.7m, and a further 4 per cent for a house priced at Sh3.9m.
Half of all urban Kenyans could not afford the loan repayments to buy a house at Sh700,000.
For more information, please contact:
The Mortgage Company
GreenHouse, Ngong Road
+254 729 933955, +254 737 933955
Total returns on mortgaged house purchases
A comparison of the costs of a variable mortgage, versus the gains in house price appreciation and rental
income in each year.
Average lending rates over the last ten years.
Total returns from a mortgage buy (house price
capital appreciation + rental income per year) less
the annual cost of a mortgage will illustrate
whether or not the mortgage is a profit or loss per
When the black line rises above the red line, you
are making a profit even with the cost of the
From 20,000 to 1 million mortgages – what will it take?
Caroline Kariuki, Managing Director of The Mortgage Company provides insights into mortgage uptakes.
The Deputy President has been quite forthright on the need to create an enabling environment to get Kenya to achieve 1 million Mortgages. The big question is what will it take? To achieve the huge shift in mortgage uptake, we must look to have interventions that achieve the magical tipping point. Kenya needs to have the simple formula:
For a young executive working in a decent job earning Sh100,000 a month, he might well want to live in a nice two
bedroom apartment on the right side of town. But he can only afford to if he rents the apartment. At the lowest current
rates of 13.9%, mortgage repayments are sometimes double or triple the market rent.
There is clearly something wrong with the market dynamics, which comes down to critical aspects:
To make a real difference for the average Kenyan, mortgage rates need to reduce from the current average rate of 15.5 percent to between 6 and 9 per cent a year. If we reduced rates into this range, our young executive will pay between Sh83,500 and Sh100,000 a month. This is a major shift, but it is still not enough to allow for universal home ownership.
World over, where mortgage access is commonplace, pension funds and insurance companies use their long term
funding to buy mortgage backed securities. Perhaps Kenya is ready for this. With the proposed increase in pension contributions, there is an opportunity to transform our market. If the increase in contributions was tied to the use of these funds to allow all Kenyans access to cheaper housing, the increases would be far more popular. Home ownership allows “real” security in old age as well as creating wealth from capital gains.
The creation of a secondary mortgage market is also critical to providing a source of cheaper priced, long term financing for mortgages. The government can guarantee loans that conform to acceptable criteria to enable the pricing of mortgage backed securities to be priced lower than corporate loans. This will provide much needed liquidity for mortgages for financing institutions perhaps with limitations in the margins that can be charged from these guaranteed loans. The current market system where financiers hold mortgages on their own books greatly limits their ability to issue new loans.
The establishment of a housing fund would be the ultimate prize. In countries such as Singapore, the famous Lee Kwan Yu established a Housing Development Board responsible for developing public housing towns to provide Singaporeans with quality homes and living environments. The Board makes mortgages affordable through subsidies to keep mortgage payments at 20 to 30 per cent of gross household income. A good place to start would be to limit access to affordable housing to Kenyan Citizens in lower income brackets.
For our young executive to afford the home he desires, the cost of the housing will also need to come into play. Today, high prices are the product of the high cost of land, the cost of infrastructure, construction costs and developer profit. When all these components are put together, the houses in the market are way beyond the reach of most Kenyans.
If the government can allocate incentives to open up new development areas by providing serviced land and strong infrastructure support, this equation can change drastically. Imagine having a rail connection and good road to a city, where land can be accessed for a fraction of the normal price: why would the executive need to live close to the city centre, if he can get to work in 30 minutes stress free? His two-bedroom house would then cost him Sh5m instead of Sh11m with all the amenities he can access from his current location. Combined with a 9 per cent mortgage, he can now afford his Dream House with a mortgage payment of Sh45,600 per month!
Today, only salaried employees can even begin to dream of taking a loan for home ownership. Banks consider the payslip as the one sure repayment guarantee for mortgages. Yet in today's job market, where job security is not guaranteed, this may be a false sense of security for financiers. The majority of Kenyans who are not in formal employment - 12m people according to Africa Economics data - are considered a poor credit risk for long term lending! It is ironic that an owner of a SME cannot access a mortgage, while his employees have a smooth ride to the bank. The bank is willing to take a risk on the employee, but not the person ensuring that the employee gets paid.
We need to learn how to assess the risk of the informal sector and the self-employed. Even those who boast rental income are considered “risky” for banks, with their income so heavily discounted as to be way too low to allow access to any decent loan. The current rental discount means that for every Sh100 in rental income, the financiers will only allow Sh45 to Sh55 for mortgage income considerations. This is despite the fact that to earn this level of rental income, the person already owns a highly valuable property.
Likewise, for our long-suffering Diaspora, access to mortgage finance is premised on “formal employment” status in the country of residence. We all know that the majority of the diaspora have no formal papers and therefore are left to send huge sums for investment through relatives and informal investment routes that cost them dearly. Perhaps the establishment of a guaranteed Diaspora Investment Fund would give them guaranteed returns and access to investment opportunities in a more structured manner. This could also be a fund that provides the country with much needed affordable funding for the property sector. This fund could be a revolving fund that allows the Diaspora access to friendly Diaspora funding options for local investment.