Kenya mortgage markets

Banks are the main providers of mortgage finance with 77.5 percent of all mortgage lending originating from six banks out of a total of 43 banking institutions in the country, indicating the reluctance of financial institutions to expand their mortgage portfolios.

According to the 2019 affordable housing yearbook published by Centre for Affordable Housing Finance (CHAF), the main barriers to mortgage issuance include asset-liability mismatch by tenor due to the relatively long-term nature of mortgage loans and short-term nature of bank deposits, limited access to capital markets funding for mortgages resulting in low supply of long- term capital, a complex legal and regulatory framework and collateral requirements making mortgages exceedingly expensive.

Banks also face the challenge of insufficient credit risk information, particularly in the informal sector despite the informal sector making up a significant 83.4 percent of the total employment. An inefficient land and property registration process adds to the unfavourable mortgage credibility of home buyers.

In context, out of an adult population of about 23 million, only 26,187 mortgage loans were active in December 2017.

While the number of mortgage loans has been growing by a compounded annual growth rate (CAGR) of 5.7 percent since 2013, the average mortgage size in Kenya has been growing at a higher CAGR of 9.6 percent, from KSh. 6.9 million (US$67 171) in 2013 to KSh. 10.9 million (US$106 111) in 2017, thus locking out potential homeowners.

Housing PS Charle Hinga has in the past indicated that 18,000 of these mortgages are on concessional rates to employees of banks, corporations or government. The value of mortgage loan assets outstanding increased to KSh. 219.9 billion (US$2.4 billion) in December 2016 from KSh. 203.3 billion (US$2 billion) in December 2015, an 8.1 percent growth.

Following the interest rate cap law, average mortgage interest rates dropped to a range of between 10.5 percent-18 percent, from 11.9 percent-23 percent in 2015.

The recent repeal of the rate cap law, however, is expected to shake up things in the medium term. For now, housing markets are yet to reflect any effects of the law change. Meanwhile, bankers have moved to assure customers that there will be no significant changes in interest rates charged by banks.

Despite its potential, the Kenyan mortgage market continues to lag behind with some of the factors hindering its maturity being the high cost of houses versus low incomes, high lending rates, difficulties with property registration and titling, undeveloped standardization of loan underwriting and documentation or servicing procedures, and the inability to access long-term financing.

It is notable that the size of mortgages outstanding has hardly changed in the last ten years since CBK began collecting data. As is anecdotally known, but difficult to quantify, there is a considerable amount of credit into housing from personal loans from banks.

According to CHAF, Kenyans generally access loans from Savings and Credit Cooperatives (SACCOs), which provide approximately 90 percent of Kenya’s total housing finance. This is attributed to SACCOs’ interest rates which remain low at 12 percent.

However, SACCO financing remains highly constrained by the short-term nature of their deposit liabilities and short loan tenures of not more than five years. This has resulted in low homeownership with only 26.1 percent of urban dwellers owning the houses they live in, the main constraint being access to financing instruments.

But Kenyans homeownership aspirations are about to take a remarkable turn following the latest move by the Kenya Mortgage Refinancing Company which announced an arrangement to avail mortgages at 7 percent interest for Kenyans earning below Ksh. 150,000.

A statement from the treasury said that beginning April this year, KMRC will release the disbursements to banks at a rate of 5 percent. When loans materialize, citizens will in effect be able to access home loans at a discount of more than 5 percent to the current market rates.

The concessional loans will not be applicable to citizens earning more than Ksh. 150,000.

Related; OpEd: Affordable housing requires a new shape for the mortgage industry