The Mortgage Company managing director Carol Kariuki (left) with Hass Property Development manager Sakina Hassanali at the launch of third quarter Hass Index report at the Hilton Hotel in Nairobi October 31, 2013. Photo/Salaton Njau
What you need to know:
The third quarter 2013 report by The Mortgage Company (TMC) and Hass Consult shows many potential home buyers remain locked out of the mortgage market, preferring to rent houses or pursue shorter-term loans to finance house purchases.
The high mortgage rates have also had an effect on the rental market, with landlords who rely on mortgage backed financing to put up their units at a significant disadvantage in comparison to their self-financed competitors.
The average cost of home loans remained unchanged at 16.96 per cent between July and September as increases by three banks offset marginal rate deductions by seven mortgage providers, keeping house financing beyond reach of the majority.
Six out of the 16 banks that offer mortgage loans held their lending rates steady.
The third quarter 2013 report by The Mortgage Company (TMC) and Hass Consult shows many potential home buyers remain locked out of the mortgage market, preferring to rent houses or pursue shorter-term loans to finance house purchases.
The Mortgage Company and Hass Consult said that many banks continue to earn a nine-point interest spread between the mortgage rates and the Central Bank base lending rate, which stands at 8.5 per cent.
“The best rate on offer from the mainstream mortgage market was 13.5 per cent from CfC Stanbic, unchanged from the previous quarter,” read part of the report released Thursday.
“Notably, the most expensive mortgages continued to be offered by Equity Bank, Diamond Trust Bank, Consolidated Bank and Family Bank, all at 18 per cent.”
The surge in mortgage loan costs was triggered by a 2011 policy rate increase by the Central Bank, which saw a widening of interest rates by commercial banks that persists to date.
On average, according to the report, the interest rate spreads in the mainstream mortgage market run at eight per cent, up from six per cent in 2011.
Seven banks cut their mortgage rates by between 0.5 to 1.5 per cent in the quarter, while three banks increased their rates by between 0.45 and two per cent.
The report says that some banks like NIC, Chase and Equity are using relationship pricing for mortgages based on the overall business from a customer, rather than using a fixed mortgage rate.
Mortgage rates remain high in Kenya compared to other countries. For example, the average rate in South Africa stands at 8.5 per cent, while those of the UK and US are at 5.5 and 3.5 per cent respectively.
The Mortgage Company managing director Caroline Kariuki said that there is a need to increase affordability and accessibility of mortgages in Kenya, as the high interest rates and a preference for people in formal employment locks out many potential takers.
Over the past 10 years, she said, the number of employed has increased from 1.6 million to 2.2 million, while those in self-employment and SMEs has risen from 800,000 to 12 million, yet the mortgage suppliers still make it difficult for the second category to access the facility.
“As things stand, we have only some 20,000 mortgages in the market, up against a population of 40 million. Even if you look at the approximately 3.9 million people who are deemed to be in the middle income bracket, that represents just 0.5 per cent of the potential market,” said Ms Kariuki.
The high mortgage rates have also had an effect on the rental market, with landlords who rely on mortgage backed financing to put up their units at a significant disadvantage in comparison to their self-financed competitors.
According to Ms Kariuki, the self-financed landlords enjoyed annualised yield rate of up to 11 per cent in the quarter.
“Majority of the properties bought in Kenya today are bought by investors who then rent out that property. In urban areas like Nairobi, 80 per cent of people are living in rented accommodation,” said Hass Consult property consultant Nathan Luesby.
A slowing house market also had a negative effect on overall prices in the third quarter, bringing asking prices down by an average of 1.5 per cent.
Asking prices of detached houses went down by 2.3 per cent, while the prices of apartments dropped by 0.8 per cent. Semi-detached houses saw a 0.8 per cent increase in asking prices.
