Average home loan soars to Sh7.5m, locking out many

The average size of mortgages increased to Sh7.5 million, making it difficult for a majority of Kenyans to own homes financed by commercial banks.

The Central Bank of Kenya (CBK) data shows that the average home loan rose from Sh6.9 million in 2013 and Sh6.4 million in 2012, a jump blamed on high interest rates, expensive homes and upfront fees.

Mortgage lending increased last year by nearly a fifth to Sh164 billion held in 22,013 accounts, up from 19,879 a year earlier and 18,587 in 2012.

“Banks identified high cost of housing/properties, high interest rates, and high cost of incidental cost as the major impediments to the growth of their mortgage portfolios,” noted the CBK.

The average mortgage interest rate stood at 15.8 per cent last year, down from 16.37 per cent in 2013.

At 15.8 per cent, those borrowing Sh7.5 million for 10 years will need to pay Sh124,701 per month and Sh109,108 if the mortgage runs for 15 years. This makes it difficult for those earning less than Sh300,000 monthly to qualify for the average home loans, given that banks demand that borrowers retain a third of the pay after all deductions.

A CBK mortgage market survey in December revealed that 22 per cent of the bankers interviewed cited the high cost of houses as the major impediment to mortgage uptake, with 21 per cent of them blaming high interest rates.

Upfront costs such as legal fees, valuation fees and stamp duty were cited by 15 per cent of the bankers as hurdles to accessing mortgage.

The cost of mortgage has defied a new formula introduced last June for banks to use in pricing loans, seeking to bring down high interest rates that have stifled lending to businesses and home buyers.

Kenyan banks say their operating costs are higher than those in more advanced markets and that they lack a developed credit rating system for screening customers.

Consumers accuse banks of taking too much profit by charging high lending rates while offering lower deposit rates.

READ: High interest rates lock most Kenyans out of home loans

Under the new system, bank lending rates are linked to the Kenya Banks’ Reference Rate (KBBR), which is based on averages of the monetary policy rate and the 91-day Treasury bill yield over six months.

They are allowed to add a premium based on business costs, such as electricity, and the borrower’s credit profile.

Most of the banks continue to finance only 90 per cent of the property’s cost. Some like Housing Finance and KCB, however, introduced a 105 per cent financing offer to help meet the upfront costs.

The CBK report adds that the amount in default stood at Sh10.8 billion as at December 2014 compared to Sh8.5 billion in 2013.

Kenya’s mortgage debt to gross domestic product (GDP) ratio stands at 3.5 per cent which is much lower than in developing country peers such as South Africa (33 per cent), India (six per cent) and Colombia at seven per cent.

In Europe, the figure stands at around 50 per cent, and it is over 70 per cent in Britain and the United States.

The lack of affordable mortgage products has seen most people opt to pay cash for a house or buy land and build homes over a period of time.

CBK has urged for a re-think of policies among them subsidising stamp duty for first-time home buyers and development of infrastructure outside the main urban centres.

Housing Finance continues to be the biggest lender in the mortgages market with 5,840 accounts worth Sh45.2 billion in outstanding amounts.

KCB is second with a loan portfolio of Sh41.3 billion despite having more customers in its books—5,914— than Housing Finance.