Lenders exempted from mortgage cap in State-backed plan

Banks and saccos have been exempted from capping mortgage rates supported by the State-backed refinancing firm that was established to boost supply of cheap home loans.

The newly established Kenya Mortgage Refinance Company (KMRC), a Treasury-backed lender which offers banks and saccos cash for onward lending to households, says the rates should be market driven.

But KMRC Chief executive Johnson Oltetia encouraged participating banks and saccos to add a margin of up to four percentage points above the rates offered to them by the refinancing firm, placing the cost of home loans at nine percent.

This is a departure from earlier position by the Treasury, which has capped mortgages provided by KMRC at seven percent.

KMRC will lend to banks and financial co-operatives at an annual interest of five percent, enabling them to write home loans at rates lower than average market rate of 11.94 percent.

“The idea is not to put another cap because KMRC is working with the government and the government policy has been to remove caps. The whole thing is market-driven,” said Mr Oltetia.

“But, fundamentally, we need to create a situation where the benefits reach the people. So we are encouraging financial institutions to lend within single digit so that you don’t get concessional financing and offer financing as if it is at market rate.”

Prospective home buyers, who qualify for home loans under the KMRC framework, will access up to Sh4 million for property in Nairobi metropolitan area and Sh3 million elsewhere with a repayment period of up to 20 years.

Already six saccos — including Harambee, Stima, Tower, Imarika and Bingwa — and two undisclosed banks have been approved to start offering loans under the KMRC funding model.

“The key point is to essentially create competition because when you do that and allow market forces to run, then people have more options,” Mr Oltetia said.

Taxpayers, through the Treasury, own a 25 percent stake in non-deposit taking KMRC, with the rest of the shares held by 19 financial institutions as participants and shareholders – seven commercial banks, 11 saccos and one microfinancier (Kenya Women Microfinance Bank).

Mortgage firms have shied away from writing housing loans, mainly due to a lack of long-term deposits in the industry to match them.

KMRC will now feed the banks with long-term funding, reducing the lenders’ reliance on short-term loans.

Commercial banks in Kenya had only 26,504 mortgage accounts in their books worth Sh224.8 billion as at the end of 2018, according to the CBK data.

The mortgage penetration rate, at only 2.7 percent of gross domestic product (GDP), compares poorly to South Africa’s mortgage industry that makes up 31 percent of GDP.