Kenyans earning Sh150,000 and below per month will from April get house loans from local banks and saccos at an annual subsidised interest of seven percent or nearly half the prevailing market rates.
The cheap mortgages are the product of the new established Kenya Mortgage Refinance Company (KMRC), a Treasury-backed lender, which offers banks and saccos cash for onward lending to households.
KMRC will lend money to financial institutions at an annual interest of five percent, enabling them to write home loans at seven percent—lower than market rate of 12.9 percent.
“We will then disburse the money to various banks and saccos from April at highly concessional rate of five percent,” Treasury Secretary Ukur Yatani told Parliament Thursday.
“The banks or saccos will then disburse the money to applicants wishing to purchase affordable housing at not more than seven percent.”
Mr Yatani said Kenyans who opt to buy their houses under KMRC will qualify for loans of up to Sh4 million with a repayment period of up to 20 years.
This will commit home buyers to a monthly mortgage repayment of Sh31, 000 over the 20 years, down from Sh46, 863 on market rate.
KMRC, which has so far mobilised Sh37.2 billion - Sh2.2 billion in equity capital, Sh25 billion committed by the World Bank and Sh10 billion from African Development Bank - has plans to raise an extra Sh5 billion from the capital markets.
The non-deposit taking KMRC plans to issue bonds at the capital markets and mobilise more funds from international development institutions.
It is 20 percent owned by the Treasury with eight commercial banks, 11 deposit-taking saccos and one micro financial institution holding a combined 80 percent stake.
Mortgage firms have shied away from writing housing loans mainly due to 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.
The funding is expected to drive the number of mortgage accounts to an estimated 60,000 by 2022.
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 Central Bank of Kenya 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.
Kenyans earning more than Sh150,000 per month will, however, continue to borrow house loans at market rates, with the role of KMRC being limited to mobilising more cash for mortgages and cushioning the primary lenders from losses linked to loan defaults.
The Jubilee administration’s housing pillar is a key plank of the “Big Four” economic development strategy that is aimed at generating higher growth.
Default on mortgages
Banks have gone slow on providing home loans due to a spike in defaults.
Default on mortgages jumped 41 percent to Sh38 billion in 2018, pointing to widespread distress in the real estate sector as the Kenyan economy slows down and property auctions pick up.
Latest CBK data shows that mortgages recorded the highest growth in non-performing loans (NPLs) last year from Sh27.2 billion in 2017, reflecting the struggle by investors to find buyers for their houses amid dwindling returns.
CBK is yet to release 2019 data
Unpaid mortgages increased by Sh11.2 billion or 41.1 percent, a rise that outpaced other segments like manufacturing (19 percent), traders (four per cent) and personal loans (six percent) in growth of default on loans, CBK said.
The mounting defaults in the property market are a reflection of the struggles that mortgage holders are undergoing in an economy that has witnessed a string of job losses in recent months across nearly all sectors as corporates intensify austerity measures to protect their profits.
This has seen workers who took mortgages on the strength of their pay slips default with the slowdown in real estate hurting property developers who are finding it difficult to sell units that were built on loans.