Home buyers to get Sh3,750 monthly tax relief on mortgages


The relief is only applicable for single residential dwellings where the owner lives. PHOTO | FILE

Mortgage holders are set for a Sh3,750 additional relief on their monthly earnings after the law was amended to reduce their taxable income.

The Finance Act, 2016 says that the interest portion of mortgage repayments will be tax-free up to Sh25,000, up from the previous limit of Sh12,500.

This means that mortgage holders will be allowed to deduct up to Sh25,000 from their taxable income with the remainder taxed as per normal taxation brackets.

The relief will also apply to those who took loans to develop or refurbish their homes. It is however only applicable for single residential dwellings where the owner lives.

The relief applies to all loans taken to buy or refurbish properties from banks, saccos and insurance companies. It is part of efforts by the government to encourage uptake of mortgages, allowing more people to own homes.

It will also offer some compensation for buyers of new houses who are now spending more on mortgage repayments as prices of houses continue to rise.

Data from the Central Bank of Kenya indicates that the average mortgage size rose to Sh8.3 million last year.

At the current interest rates of 14 per cent and with a 20-year repayment period, a borrower would be paying about Sh96,000 in interest per month in the initial period.

But the relief will offer more respite for low income earners should the government succeed in its plan to have developers build cheap houses and increase the number of cheap mortgage loans.

READ: Average mortgage rises to Sh8.3m on costly upfront fees

The government has set in motion a plan for cheap houses by offering developers a 15 per cent tax incentive on their corporation tax.

Treasury Secretary Henry Rotich, in his June 8 budget speech, said that they were also working to introduce cheap mortgages.

“We are working with our development partners to put in place a Mortgage Liquidity Facility which will provide long term funding to financial institutions, including saccos, to enable them provide longer tenure mortgages to the public,” Mr Rotich said.

The mortgage relief coupled with the recent drop in interest rates after a cap was introduced is expected to see growth in the number of those borrowing to buy or build homes.

“Accessibility and affordability of mortgages will become a reality now. More people have been netted into the basket of being able to borrow or take up a mortgage in the banking sector. This is a big development for the housing and construction industry,” Britam Asset Managers chief investment officer Elizabeth Irungu said on Tuesday.

There were 24,458 mortgage accounts by the end of last year worth about Sh203 billion.