Sh11m mortgage locks out millions of Kenyans

The average size of a home loan advanced by Kenyan banks has risen by nearly Sh2 million in one year to hit Sh10.9 million, locking even more borrowers out of the housing market.

The Central Bank of Kenya (CBK) sector report released Tuesday says the mortgage increase was mainly driven by a rise in house prices last year.

The average value of a mortgage taken in the year to June 2017 stood at Sh9.1 million, indicating a 19.8 per cent increase in the period.

This puts the average monthly repayment for the Sh10.9 million loan at about Sh150,000, if the mortgage is taken at the current interest rate of 13 per cent.

The CBK report puts the average maturity term at about 12 years.

About 78.4 per cent of the mortgage loans were issued on variable interest rates compared to 62.1 per cent the previous year.

90pc of property value

The majority of the banks pegged the loan amounts on less than 90 per cent of the property value, indicating that the actual average price of the houses bought was more than the Sh10.9 million.

Commercial banks ordinarily require that customers source a certain amount of cash as deposit when advancing mortgages.

A few lenders, however, offer up to 105 per cent mortgages, which covers the payment of fees and commissions charged by external parties such as lawyers and surveyors.

“Loan to value (maximum loan as a percentage of property value) was pegged below 90 per cent by a majority of the banks in 2016 and 2017,” said the CBK in the report.

The increase by Sh1.8 million in 2017 was the highest upward change in any single year since the CBK started publishing the data in 2010.

Four banks dropped from the group of those offering mortgages, leaving the field to 31 lenders.

Two of the banks were acquired while the other two stopped offering the loans.

The CBK, however, did not specify why the two stopped offering the product.

In 2016, the monthly repayment amount within 12 years at the current rate of 13 per cent would have been Sh125,000 – meaning a borrower would pay Sh25,000 more at the current average mortgage cost.

“The mortgages are certainly not affordable for many who are in the middle- and lower-middle classes. Obviously they cannot be affordable by those in lower classes.

"This is an industry for the upper-middle and upper classes. That ought to be changing,” said the chairman of Consumers Federation of Kenya, Stephen Mutoro.

Legacy projects

President Uhuru Kenyatta has put affordable housing at the centre of his legacy projects, although clear details of the cost to borrowers and eligibility are yet to be made public.

Mr Mutoro said the current economic environment of rising prices, insecurity in the jobs market and erratic salary payments meant that mortgages were still a luxury to many Kenyans.

The rise in house prices, he suggested, could also be attributed to corrupt or criminal buyers with dirty money seeking to launder it in the mortage market.

“Sources of some of the money getting into the property market is suspect. Some people have made money elsewhere and are now taking to the property market and this is pushing the common person out of the market with the high prices,” said Mr Mutoro.

In the past, corruption by public officials and piracy in the Indian Ocean have been cited as possible causes of the escalation in property prices.

Between 2007 and June this year, property prices have risen by 241 per cent (more than three-fold), according to data compiled by HassConsult, which produces regular updates on property sales and rental prices. In the year ending June, the asking prices for all properties rose by 5.1 per cent.

Despite more than two million Kenyans being in formal employment, the number of mortgages at the end of 2017 stood at only 26,187 – having risen from 24,085 the previous year.

The number of such mortgages dropped slightly in 2016 for the first time since the CBK began publishing the data in 2010.

The chief executive of the Kenya Bankers Association, Habil Olaka, said he could only comment on the rising mortgage costs after studying the new CBK data.

Though many banks offer loans stretching to 20 or 25 years, the data indicates that most have been taking the money for about half of that period or less. In 2017 and 2016, the average maturity of the loans was 11.9 and 12 years, respectively.

“The average loan maturity was 11.9 years, with minimum of five years and a maximum of 25 years in 2017, as compared to average loan maturity of 12.0 years, with a minimum of five years and a maximum of 25 years, in 2016,” says the CBK.

The actual interest rates charged ranged between 10.8 and 14 per cent in the course of last year, which is in line with the maximum rate chargeable as determined by the Central Bank Rate. The average, however, stood at 13.57 per cent.