Housing Finance has reported a 38 per cent drop in mortgage sales in the first quarter, slowed by a sharp increase in lending rates that discouraged new borrowing.
The drop in mortgage loans to Sh2 billion could point to a slowdown in the entire banking industry as a result of the steep increase in cost of loans.
The mortgage lender, however, overcame the sharp drop in fresh lending to grow its net profits by 11 per cent to Sh133.6 million, helped by higher interest income on outstanding loans.
HF’s performance provides a pointer to the expected results from its peers in the banking sector, being the first lender to file its quarter one financial report when the impact of a higher interest rate environment is expected to reflect in their financials.
“We have seen a drop in mortgage sales which is mainly as a result of a rise in interest rates that mainly affected those entering the mortgage market,” said Frank Ireri, the HF managing director. HF’s interest income grew 46 per cent to Sh951 million despite the drop in new lending, compared to Sh651 million posted during a similar period in 2011— indicating that the adjusted interest rates on outstanding loans lifted its top line.
The lender raised interest on its mortgage products to 23 per cent beginning October last year from 14.5 per cent, after the CBK tightened monetary policy as it moved to tackle inflation and cushion the local currency from a further downward spiral.
Average lending rates in the banking sector are at 25 per cent; a situation that analysts expect will significantly dampen borrowing and cut growth momentum in a sector where interest income is the main driver of growth in profit.
HF’s performance is in line with findings of a survey by real estate firm Hass Consult which reported a near-disappearance of mortgage-financed home buyers since the second half of last year to present a difficult time for developers who are now reporting swelling home inventories.
Joram Kiarie, who heads mortgage business at KCB, said on Friday last week that the first quarter had been difficult and that the uptake of both home loans had taken a significant beating — owing to the high interest rate environment. “Mortgage business has been very slow this year because of the high lending rates; we are hopeful it picks up towards June,” said Mr Kiarie, who expects that interest rates will ease to bring back home buyers.
Analysts at Standard Investment Bank said in research note last week that the ‘party was over’ for the local banking sector, which has enjoyed a sustained growth for over eight years buoyed by a surging appetite for credit.