Why Mortgage Uptake in Kenya Remains Low Despite Incentives.
Throughout the past year, the Kenya Mortgage Refinance Company (KMRC) introduced several strategies aimed at enhancing mortgage accessibility and encouraging home ownership. One of the key initiatives was extending refinancing beyond its shareholder banks to include non-shareholders such as SACCOs and microfinance institutions. This expansion allowed smaller financial entities to provide more affordable and long-term mortgage options, particularly benefiting low and middle-income earners.
Under this scheme, lenders received funds at a 5 percent interest rate, enabling them to offer mortgages to consumers at significantly lower rates, some as low as 9 percent. Additionally, the KMRC revised the income eligibility for borrowers, raising the threshold from Sh150,000 to Sh200,000 per month. The maximum accessible mortgage amount also increased, from Sh8 million to Sh10.5 million within the Nairobi Metropolitan Area and from Sh6 million to Sh10.5 million in other regions.
Challenges in Mortgage Uptake
Despite these interventions, mortgage penetration in Kenya remains low. Data from the Central Bank of Kenya (CBK) indicates that there are just over 30,000 mortgage accounts nationwide. One of the major impediments is the numerous additional costs associated with securing a mortgage, making it difficult for young professionals and low-income earners to afford home loans. These costs include commitment fees, survey costs, arrangement fees, broker charges, legal fees, telegraphic transfer fees, deeds release fees, and solicitor’s charges, all of which significantly increase the final mortgage cost.
Industry experts note that many brokers fail to disclose all these fees upfront, leading to complaints about hidden costs from borrowers after engaging with lenders. Before issuing a mortgage, banks appoint valuers to assess property value, with these valuation costs borne by the borrower. Similarly, legal representation fees are also transferred to the mortgagor, further escalating financial burdens. Additionally, those purchasing off-plan units must cover developers’ legal fees for transaction handling.
Legal and Regulatory Considerations
Legal fees, though essential in protecting both buyers and lenders, are a financial strain as they are payable by the buyer. Besides these costs, insurance fees are required to ensure loan repayment in the event of the mortgagor’s death or disability. Stamp duty further inflates mortgage costs, especially for properties outside affordable housing programs, where tax exemptions are minimal. This duty can account for up to four percent of the property’s value, adding to financial constraints.
Moreover, time-related costs are often underestimated. Delays in mortgage processing can increase costs, particularly when acquiring properties from developers. Price fluctuations in construction materials, a common occurrence in Kenya, further impact housing prices and, consequently, mortgage affordability. Ensuring structured financing systems that incentivize homeownership is essential for improving accessibility.
Addressing Inequities in Mortgage Distribution
For a more inclusive mortgage system, mechanisms ensuring consistency in interest rates must be implemented. Lenders currently assign varying interest rates based on risk assessments, often disadvantaging non-salaried individuals and employees of small businesses. While salaried individuals in large corporations easily access mortgage financing, those in smaller firms struggle due to perceived higher risks.
Recent reductions in the CBK’s base lending rate raise concerns about whether lenders will lower their interest rates accordingly. The absence of fixed mortgage rates in Kenya contributes to the hesitancy in mortgage uptake, as fluctuating interest rates create financial uncertainty for borrowers. Many who qualify for mortgages are unable to sustain monthly repayments, affecting overall demand and transaction volumes in the housing sector.
Government Interventions and Policy Recommendations
Government initiatives such as state-backed mortgages and favorable loan conditions through public financial institutions can bridge the financing gap. The KMRC model has already helped non-salaried individuals build credit history and improve access to affordable mortgage rates. Additional incentives such as tax reliefs for affordable housing developers and first-time homeowners could further stimulate the market. For instance, tax exemptions on construction materials or mortgage interest deductions could lower the cost of homeownership.
A lack of public awareness about mortgages and the home-buying process has also hindered market growth. Many potential homeowners struggle to understand mortgage financing, including the impact of variable interest rates and missed payments. Public education campaigns could demystify mortgages and encourage wider adoption by providing clear insights into the process.
Innovative Mortgage Products and Consumer Advice
To improve mortgage affordability, industry players must innovate and develop products tailored for underserved populations. One approach is designing loans with repayment terms spread more evenly, making mortgages more accessible to low-income earners.
Prospective mortgage applicants must be well-informed before committing to home loans. Experts advise that beyond interest rates, borrowers should assess all associated costs, including processing fees, insurance, valuation, and loan protection premiums. Understanding these expenses helps individuals make informed decisions and avoid unforeseen financial burdens.
Inflation and interest rate fluctuations are additional considerations, as many lenders offer fixed rates for limited periods before transitioning to variable rates. Prospective borrowers must prepare for worst-case scenarios where increased rates could raise repayment amounts. Calculating the highest possible repayment amount under variable rate scenarios can help mitigate financial shocks.
See Also: 80% of Working Kenyans Earn the Same or Less Than Last Year
Another crucial aspect is financial prudence. While lenders may approve larger loans based on credit scores, it is advisable to avoid overextending one’s budget. Housing-related costs should ideally remain within 30 to 35 percent of monthly income. Borrowers must also weigh loan tenure options, as longer terms might seem affordable due to lower monthly installments but result in significantly higher interest payments over time. A shorter-term loan, despite higher monthly payments, ultimately reduces overall interest expenses.
By ensuring transparency in mortgage processes, reducing associated costs, and developing innovative mortgage solutions, Kenya can bridge its housing deficit and enhance homeownership rates for a broader segment of the population.
Why Mortgage Uptake in Kenya Remains Low Despite Incentives
