Will fixed rate mortgage solve Kenya's big home ownership riddle? 


You can now own a home valued at Sh1 million by paying Sh8,700 per month for a period of 25 years. FILE PHOTO | SHUTTERSTOCK

You best believe it--you can now own a home valued at Sh1 million by paying Sh8,700 per month for a period of 25 years at a 9.5 percent fixed interest rate.

For those with slightly deeper pockets, Sh70, 000 a month for a similar period and interest will see you secure a house worth about Sh8 million.

Already, about 3,000 Kenyans have benefited from Kenya Mortgage Refinance Company (KMRC) offerings. KMRC is the local equivalent of Fannie Mae or Freddie Mac—US government outfits tasked with deepening home ownership among those in the lower economic strata.

But for a country of 56 million people, property experts say that the number is an insignificant drop in the ocean and that for impact, the KMRC efforts need to be replicated a thousand times over.

Johnstone Oltetia, the chief executive officer of KMRC said a total of Sh5.8 billion has been disbursed and plans are underway to give out Sh8 billion more this year as KMRC makes forays into home ownership for those in the middle class and below.

Pipeline of houses

“We are looking at an upper threshold of Sh150,000 a month and housing units of Sh8 million and below,” said Olteita.

“There is a pipeline of houses on the way and more partners to work with in the coming months provided they adhere to our guidelines so as to ensure that those we are targeting are the ones who qualify for the mortgages.”

The partners that Oltetia was referring to are housing suppliers under the government’s affordable housing programme and property developers willing to supply houses that can be bought under KMRC mortgage guidelines.

So what does KMRC do?

With a government mandate at hand, KMRC sources for funds from institutions including the World Bank and even local financial institutions then dishes out the money to banks and saccos for onward lending under the following terms; one that the loans are given at sub 10 percent fixed interest rates over a 25-year repayment period and that the lower income groups are prioritised.

Right direction

But even as KMRC makes forays, property finance experts are blowing hot and cold at the initiative which they say while it is a step in the right direction, will need to be significantly scaled up for the dream of home ownership to bear fruits.

“First of all, where in Nairobi or urban centres will you get a house for one million and what size will that house be to a family?” Posed Arthur Ombati, a property finance expert.

“The issue of unaffordability of units is seeing people move to the urban peripheries to build houses because the cost of land and building materials is a major concern on the price of the final product that is currently offloaded into the market at a margin.”

KMRC solves a long-standing riddle in home ownership—fixed interest rates. Up to now, apart from first qualifying for access to loans towards owning a home, the biggest headache has been monthly repayments that vary with deviations at prevailing interest rates.

Up to this point, financiers have been doling out average-rate mortgage loans, meaning that what the mortgagors would pay at the end of the month is left at the mercy of what interest rates are prevailing in the market at that point.

“Anyone applying for a mortgage under our terms with the various financial institutions will be assured that whatever the conditions in the economy, the interest rates are fixed for the entire duration of the mortgage,” said Oltetia.

KMRC becomes the first outfit to truly give out mortgage loans at a fixed interest rate outside special mortgage funds held by the banks and aimed at mostly the top management of blue chip companies. 

Fixed-rate expiration

While financial institutions have been giving out mortgage loans, the structuring has been such that they entice clients with a few years of fixed interest rates upon expiry of which the loan rates become variable depending on prevailing interest rates in the market.

“Mortgage products priced under variable interest rates means that this month a client can service their loans at a certain monthly premium and come the end of the month when they walk into the banking halls they find another figure over and above what they paid the previous month because interest rates charged has changed,” said Tambe Okong’o, a land and property valuer.

Unsecured facilities

This would happen in cases where the central bank’s monetary policy committee has revised the central bank rate upwards—signalling commercial banks to review their interests upwards to address either money supply in the economy so as to tame inflation or some other economic variable.

Across sections of property finance specialists have also questioned whether a Sh8 million house is really affordable with a consensus at a maximum price of Sh4.5 million.

Property finance experts say that many people already have unsecured facilities and their net income is lower as a result they do not qualify when strictly vetted for such loans.

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