Mortgage still too high for Kenyan buyers

With an average home loan size at Sh10.9 million in 2017 repayable in nearly 12 years, very few Kenyans can afford to own a home through bank financing.

This is because one will need more than Sh100,000 monthly on average to service a mortgage even with the September 2016 legal ceilings on loan charges, which helped slash average interest rate for home loans to 13.57 per cent last year from 18.7 per cent a year earlier.

The average mortgage size has nearly tripled in eight years from just Sh4.1 million in 2010, statistics show, locking out more and more Kenyans from home ownership.

Commercial banks, which still rule real estate financing with a portfolio of Sh371.65 billion in 2017, have for years blamed the high cost of funds for onward lending, a complex legal and regulatory framework as well as collateral requirements for making mortgages exceedingly expensive.

A tedious land and property registration process has also been cited as a factor that continues to increasingly discourage aspiring homeowners out of the under-developed mortgage market with a paltry 26,187 accounts last year.

As part of the solution to unlock access to cheaper long-term funding by commercial banks, the Treasury is incorporating Kenya Mortgage Refinance Company (KMRC).

The proposed company will act as a vehicle to raise cheaper long-term cash from the capital markets, which will then be tapped by banks for onward advancing to prospective homeowners under the ambitious affordable housing scheme.

The Treasury plans to inject Sh1.5 billion into the non-deposit taking KMRC in exchange for a 20 per cent stake, while the remainder will be owned by commercial banks, credit unions and development finance institutions.

A number of commercial banks have joined the World Bank Group in committing to financially back the proposed firm, which is expected to offer attractive interest rates to lenders looking to finance beneficiaries of the State housing project.

The World Bank has pledged $160 million (about Sh16.11 billion), Co-operative Bank (Sh200 million) while Barclays Bank, Stanbic and Housing Finance have publicly shown interest in sinking cash into KMRC.

“With the establishment of KMRC, it is expected the institution will leverage on capital markets to raise funds through bonds for on-lending to banks and other mortgage financing companies and is, therefore, also a positive development for capital markets deepening,” Capital Markets Authority chief executive Paul Muthaura said in a speech last Thursday.

With market mortgage rate at less than 14 per cent, Housing and Urban Planning Principal Secretary Charles Hinga says banks which will access funds from KMRC will not be allowed to charge more than 10 per cent interest on home loans repayable in 20 years.