Kenya's mortgage market by 5.7 percent in 2019 according to the latest Bank Supervision Report by the Central Bank of Kenya.

The value of mortgage loan assets outstanding increased from Ksh. 224.9 billion in December 2018 to Ksh. 237.7 billion in December 2019. This represents a growth of Ksh.12.8 billion and was attributed to an increased appetite for homeownership.

Mortgage Market Overview

CBK’s report revealed that about 76.4 percent of lending to the mortgage market was by 6 institutions that is, one medium-sized bank (16.9 percent) and five banks from the large peer group (59.5 percent).

The outstanding value of non-performing mortgages decreased from Ksh. 38.1 billion in December 2018 to Ksh.31.0 billion in December 2019 due to repayments.

The ratio of Non-Performing Mortgage Loans to gross mortgage loans was 13.0 per cent in December 2019 compared to 16.9 per cent in December 2018. The ratios were above the industry gross NPLs to gross loans ratio of 12.7 percent in December 2018 and 12.5 per cent in December 2019.

As of December 2019, there were 27,993 mortgage loans in the market, up from 26,504 in December 2018 an increase of 1,806 loan accounts or 6.90 per cent. The CBK report also shows that the average mortgage loan size increased from Ksh. 8.48 million in 2018 to Ksh. 8.49 million in 2019 while the number of institutions offering mortgages to customers was reduced to 31 in 2019 as compared to 32 in 2018.

Risk Factors

According to the report, the main risk factors examined by financial institutions before approving a mortgage loan to a business include the ability to pay from cash flows, the character of the business owner, the profitability of the business, credit history, and length of business operation among others.

Mortgage Loan Characteristics

Interest rates charged on mortgages averaged 11.3 per cent in 2019, with a range between 7.0 per cent and 13.0 per cent, compared to an average of 12.4 per cent with a range of 10.0 per cent to 13.2 per cent in 2018. About 86.3 per cent of mortgage loans were on variable interest rates basis in 2019 as compared to 88.8 per cent in 2018.

Most banks kept the Loan to value (maximum loan as a percentage of property value) was pegged below 90 percent in 2019 and 2018. The average loan maturity was 11.2 years with a minimum of 5 years and a maximum of 20 years in 2019 as compared to an average loan maturity of 10.6 years with a minimum of 4 years and a maximum of 22 years in 2018.

Mortgage Market Development

Financial institutions identified a number of impediments to the growth of their mortgage market portfolio. These include high cost of housing units, high cost of land for construction units, high incidental costs (legal fee, valuation fee, stamp duty), and limited access to affordable long-term finance.

Supporting the Residential Mortgage Market

Banks have suggested a number of measures to be put in place to support the residential mortgage market in Kenya. Some of the suggested measures include digitizing the Land Registry for efficiency, streamlining and simplifying the legal and regulatory process governing the mortgage sector, for transparency, efficiency and certainty.

Also, the implementation of the affordable housing program by the government and availability of affordable long-term funds through initiatives such as the recently launched Kenya Mortgage Refinance Company (KMRC).

The bankers also want the government to provide incentives for low-cost housing solutions and basic infrastructure services to developers.

Further, they suggest the establishment of a one-stop shop for all the statutory approvals for development/construction and training of youth on homeownership and inclusion of homeownership savings plans.

Interest Cap Law Repeal and Mortgage Outlook for 2020

CBK noted that there is an expected increase in demand for mortgage loans due to the perceived affordability and availability of credit. Further, the implementation of IFRS 16 in January 2019 will not impact the mortgage market as mortgage loans are not structured as leases but as loans with the subject property as security of the loan.

Mortgage uptake is expected to increase with the implementation of the affordable housing program and the formation of Kenya Mortgage Refinance Company by the government to offer affordable mortgage financing. The government initiative to provide low-cost housing and repeal of interest capping law will also boost the mortgage uptake.