The uptake of affordable home loans under Kenya Mortgage Refinancing Company (KMRC) declined by more than two-thirds in the nine months to September, partly reflecting the erosion of household earnings in an elevated inflation environment.
Latest data shows loans which were refinanced by KMRC in the review period plunged 69.03 percent to 606 mortgages compared to 1,957 loans in a similar period last year.
This came amid an economic setting characterised by high inflation amid stagnant earnings, prompting some households to postpone their homeownership plans.
KMRC, a joint venture of the National Treasury and private lenders, offers funds to participating banks and saccos for onward lending to homebuyers at a fixed annual interest rate of five percent.
The recipient lenders are in turn expected to advance the cash to qualifying homebuyers at the single-digit interest rate. Demand for discounted loans was expected to rise in a market where cost of credit is fast rising in response to monetary policy actions taken by the Central Bank of Kenya to tame inflation.
Stubbornly unrelenting inflationary pressures have prompted the CBK to raise benchmark interest rates from seven percent to 10.5 percent since May 2022.
Increasing the benchmark lending rate — the central bank rate (CBR) —makes borrowing to fund purchase of goods and services more expensive as banks use it as a base onto which they load their profit and risk profile of individuals when pricing loans.
The high-interest environment has prompted commercial banks to increase cost of home loans to more than 18 percent since last year, a development which was expected to boost KMRC-backed loans that are priced at fixed single-digit rates.
“The current lending environment, characterised by an increase in lending rates due to inflation presents an opportunity for KMRC to increase scale in lending since KMRC rates remain the same,” the mortgage refinancing firm had told the Business Daily in August.
“KMRC loans are priced at single digit fixed rates with long tenors of up to 25 years, enabling Kenyans to own homes affordably.”
KMRC had, however, feared that rising interest rates offered by the government [which has crossed 15 percent for three-month securities] may prove more attractive to commercial banks and saccos than lending to homeowners, while families may defer plans to buy a house due to squeezed earnings.
The data shows KMRC disbursed nearly Sh2.4 billion to refinance the 606 home loans between January and September, a 58.92 percent fall compared with Sh5.84 billion wired to lenders last year to fund 1,957 mortgages.