Mortgage brokers set to seize market share from large lenders

Kenya’s home loans market is undergoing a major shift that is tilting the scales against top mortgage lenders.

The market is expected to see increased competition thanks to a constant trickle of non-bank mortgage companies looking to get a toe-hold into a sector which has been witnessing growth over the years.

Newly established mortgage brokerage firms are teaming up with large institutional investors including insurers and pension funds to offer home loans, a move likely to shake the dominance of mainstream lenders.

Insurance firms unlike banks have access to long term funds owing to the nature of their business, but do not have structures to sell financial products like mortgages.

In developed economies, insurance firms are big players in the housing market, but would often buy into mortgage funds rather than selling individual mortgage plans.

The cheapest non-bank mortgage deal available in the Kenyan market is priced at 14 per cent on purchase of a ready property, more than six per cent cheaper than the average home loan from a commercial bank.

Most institutional investors are the key source of customer deposits that commercial banks use for onward lending to consumers and their strategy to offer home loans will deny banks funds.

Carol Kariuki, the managing director at TMC, a mortgage firm, says that the non-bank lenders are emerging as an alternative source of funding for home buyers.

“The non-bank mortgage market is small but it has a huge potential,” says Ms Kariuki, who estimates that there are about 300 such loans from insurance companies alone in the market now. “At least a fifth of all mortgage accounts will be held by non-bank institutions by 2017.”

Foreign investors are seeking mortgage deals through brokerage firms, according to Ms Kariuki.

Other international institutional investors are scouting for partnerships with Kenyan microfinance providers, mainly targeting households in the low end market, a segment that has witnessed low supply of affordable homes.

Daniel Mavindu, the managing director at Rafiki microfinance, told the Business Daily that several foreign-based investors have expressed interest in providing funds that the Chase Bank subsidiary could lend to home buyers.

Already, the microfinance institution has launched Sh1 million mortgage loans repayable in 10 years to cover the construction costs for a two-bedroom house, targeting low income earners with land.

Analysts say non-bank financiers have an advantage over commercial banks in the home loans market as they have access to long -term funds and their cash flows can be easily projected— eliminating the uncertainty that banks have in structuring credit products.

Isaac Ngaru, an insurance consultant at Ngaru and Associates, says that non-bank mortgage lenders have a more predictable cash flow schedule which gives them an edge over banks in providing home loans which are long-term contracts by nature.