Rising home prices push workers out of mortgage plans

The average size of a mortgage rose to Sh6.9 million last year, further pushing away the dream of financed home ownership from the majority of Kenyans.

Central Bank data shows that banks have Sh138 billion worth of home loans held in 19,879 accounts at the end of December 2013. In 2012, banks held 18,587 accounts with the average mortgage pegged at Sh6.4 million.

“The interest rates charged on mortgages on average was 16.37 per cent and ranged from between 8.5 per cent and 22 per cent. About 97.4 per cent of mortgage loans were on variable interest rates basis compared to 85.6 per cent in 2012,” said the Central Bank of Kenya in its annual banking sector survey.

A borrower who takes a loan of Sh6.9 million at 16.37 per cent over 20 years has to pay Sh97,917 a month.

The low mortgage uptake in the country has been a source of concern to Deputy President William Ruto who set up a committee to look at ways of bringing down costs late last year.

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.

READ: 7 million Kenyan families locked out of home loans

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

The committee found that the average allowable ratio of loan instalment to income is approximately 51 per cent. This means that for a borrower to service the Sh97,917 instalment they would have to be earning a salary of over Sh180,000.

“With the mainstream lenders hanging on with such tenacity to such high margins on their lending, the delayed take-off in Kenya’s mortgage market is distorting the country’s housing range, discouraging private developers and locking out all bar the elite from home ownership,” said The Mortgage Company in its first quarter report of the real estate sector.

Central Bank said that 1,280 mortgage loans valued at Sh8.4 billion were in default compared to 956 accounts in 2012 worth Sh6.7 billion.

Housing Finance overtook KCB as the largest mortgage lender in the country with 5,400 accounts valued at Sh35.2 billion compared to the latter’s 5,343 accounts worth Sh34 billion.

Last year, Housing Finance introduced 105 per cent financing of mortgage deals. The arrangement helps to foot some of the transaction fees associated with housing purchase such as stamp duty and down payments.

Central Bank has been urging the government to consider subsidising stamp duty for first time home buyers.

However, this was not in the report submitted by the mortgage committee. Instead, it recommended fast tracking of the ongoing modernisation of the lands and companies registries and facilitation of financing for developers of houses targeting lower income buyers.