The average mortgage size rose to Sh8.3 million last year due to increase in home prices, locking out a majority of Kenyans from bank-financed housing.
The Central Bank of Kenya (CBK) data shows that the average home loan has increased fromSh6.9 million in 2013 and Sh7.5million in 2014, a jump blamed on expensive homes and upfront fees.
Mortgage lending increased last year by 23 per cent to Sh203 billion held in 24,458 accounts.
This was a growth from Sh164 billion the previous year due to a rising appetite for home ownership as opposed to rentals.
“There were 24,458 mortgage loans in the market in December 2015 up from 22,013 in December 2014… due to increased demand from the expanding middle class,” the CBK said in the 2015 Bank Supervision Annual Report.
The average interest rate charged on the 2015 mortgages was 17.1 per cent, up from 15.8 per cent in 2014 with a majority of the loans on variable interest rates.
The CBK however noted that more borrowers are now opting for fixed rates to protect themselves from interest rate fluctuations.
At 17.1 per cent, those borrowing Sh8.3 million for 10 years will need to pay Sh144, 800 per month; for 15 years (Sh128, 300) and Sh122, 400 if the mortgage runs for 20 years.
Qualify average home loans
This makes it difficult for those earning less than Sh300,000 monthly to qualify for the average home loans, given that banks demand that borrowers retain a third of the pay after all deductions.
At Sh8.3 million, the mortgage size has more than doubled in the last six years from Sh4.1 million in 2010 highlighting the fast-paced growth of property prices in Kenya.
Most of the properties on the market are targeted at the middle class with a recent report noting that there is a shortage of low cost housing.
The Kenya Bankers Association earlier this week said that this shortage was because developers are inclined more towards renting than selling.
Expensive homes, high interest rates and high incidental costs like stamp duty, legal and valuation fees remain the biggest obstacles to growth of the mortgage sub-sector. These difficulties have seen a lot of Kenyans opt to buy houses or take Sacco loans to buy land and build incrementally.
Institutions surveyed by the CBK suggested the use of alternative building technology to make houses more affordable, reduction of fees like stamp duty and tax waivers for first time buyers to spur mortgage uptake.
They however did not offer suggestions on how to deal with high interest rates which is the ranked the second biggest obstacle to mortgage uptake.
Most of the banks continue to finance below 90 per cent of the property’s cost.
The ratio of non-performing loans to gross mortgage loans was 5.8 per cent which was below the industry default ratio of 7 per cent suggesting more stringent vetting procedures before mortgages are issued.
“The outstanding value of non-performing mortgages increased from Sh10.8 billion in December 2014 to Sh11.7 billion in December 2015,” the report says.