The Kenya Mortgage Refinancing Company (KMRC) yesterday said it will structure its mortgages to

KMRC said its owner-occupier model will help Kenyans save on rent while accumulating equity in housing purchases under the affordable housing program.

The firm’s CEO Johnstone Otetia explained that offering buyers single-digit interest rates and longer mortgage terms will enable owners to achieve complete debt service coverage with the currently prevailing market rental rates.

“By default, when you have a cheaper house which you now own, when you have long-term financing, when you have lower interest rates, then you are creating an alignment between what you are paying now as rent and what you will pay as mortgage,” he said

Many Kenyans have shied away from mortgages because rental payments do not ususally cover the debt service required by lenders.

A quick analysis revealed that under the current mortgage interest rates, a buyer or an investor using bank debt may in most cases only achieve a 40-50 percent leverage at best on a rental property if they are to cover debt service using rental payments.

This is significantly low compared to more developed nations where interest rates are low, allowing leverage levels of up to 80 percent on rental payments. The high interest rates locally also raise the risk for investors or buyers to use mortgages.

KMRC said that two banks, KCB and Housing Finance, have already promised to provide mortgages for the Park Road Project houses at below 10 per cent, which is a positive step in the drive for lower mortgage rates.

Mortgages have gained a bad name due to hard economic times in the recent past that has seen many properties go into foreclosure. However, Mr. Oltetia said the company is intent on sanitizing the concept of mortgages.

“So we want to sanitise that name and make it better. That a home loan is actually very important. If you can manage your finances well you can always get a home and you will be able to be happy,” he said.

Related; KMRC Makes Debut Lending for Affordable Housing