KMRC lending rates will no longer be capped as earlier planned after the company announced that it has abandoned earlier plans of letting financial institutions offer mortgages to the public at no more than 7 percent.
Acting KMRC CEO Johnstone Oltetia saying capping the lending rates would go against the government’s no cap policy on bank lending, implying that Kenyans seeking cheaper mortgages may still have to deal with market forces.
“The idea is not to put another cap because KMRC is working with the government and the government policy has been to remove caps. The whole thing is market-driven,” said Oltetia.
This may come as a surprise to Kenyans who had their hopes anchored on the prospects of obtaining financing at no more than 7 percent.
In the earlier scenario, a 20-year term mortgage within Nairobi (Ksh. 4 million) would require Ksh. 3,526,733 in total interest payments over the period.
However with the new change in terms, at 9 percent the same mortgage would require Ksh. 4,727,536 in total interest payments over the period, a difference of Ksh. 1.2 million or an additional Ksh. 60,000 annually.
KMRC said it will offer long-term funding to financial institutions at 5 percent but allow them to determine individual mortgage rates based on market forces.
However, Oltetia also urged banks and SACCOs to lend at a maximum of 4 percentage points above the concessional KMRC lending rate (5%) in order to keep rates for the public within single-digit territory.
“Fundamentally, we need to create a situation where the benefits reach the people. So we are encouraging financial institutions to lend within single-digit so that you don’t get concessional financing and offer financing as if it is at market rate,” said the KMRC Chief.
The recently licensed body has already approved six SACCOs (including Harambee, Stima, Tower, Imarika and Bingwa) to carry out lending under the new mortgage lending regime that aims to improve the availability and affordability of mortgages to Kenyans.