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Cheaper Mortgage Rates May Not Guarantee Loan Accessibility

By Estate Cloud - over 2 years ago - Kenya

Cheaper Mortgage Rates May Not Guarantee Loan Accessibility

The relatively high mortgage rates in Kenya have drawn significant attention over the years with more efforts being applied over the past few years to control or bring the rates down to more affordable levels.

In the latest move, KMRC last week announced its first tranche of loans to financial institutions which it says will enable banks to drive down rates to less than 10 per cent.

This is in addition to the Central Bank of Kenya's past interventions through a variety of monetary measures that include the reduction of the Central Bank lending rate, (CBR), to 7% from 8.25% in January.

These benefits are supposed to be passed on to borrowers in the form of reduced mortgage rates, with the aim that more customers will take advantage of preferential mortgage rates from banks.

KMRC expects that as a result, banks will see an increase in the number of first-time loan applications and those looking to lock in fixed-rate mortgages.

The goal of these measures is to get more people onto the property ladder and encourage investment, boosting the housing market and aiding recovery in the residential sector.

Banks however have already reported increased mortgage defaults, a representation of the economic hardship being experienced in the country.

As a number of firms struggle and move into losses, we have also seen high levels of unpaid leave and job cuts, with unemployment at 42% in June 2020, up from 35% in March 2020 based on KNBS data.

In a recent analysis of mortgage rates, property firm Knight Frank sees the current market conditions, in addition to the likelihood of a “second wave” of infections, as an indicator that lenders will be more stringent.

With this likelihood, the firm says that lenders will likely be more cautious with their approach to new loans and be more diligent in their review and approval processes. In effect, getting loans even at reduced mortgage rates may still prove a challenge to ordinary Kenyans. 

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