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Expensive mortgages continue to dampen growth in real estate sector

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By Ben Kinyanjui

Manny people cannot afford to buy homes because mortgages have remained very expensive, says The Mortgage Company.Ms Carol Kariuki says mortgates are very expensiveMs Carol Kariuki says mortgates are very expensive

The company says in its third quarter 2013 unless the rates fall to a single digit, many prospective home buyers will keep away.

The company managing director Ms Carol Kariuki is calling for urgent action to increase the accessibility and eligibility for home loans - in a market that remains far behind other global and regional property markets in financing.

"The continuing high cost of mortgages is putting a profound brake on home ownership in Kenya, and even affecting the uptake of properties for rental,” says Ms Kariuki.

“Urgent attention needs to be given to increasing the accessibility and eligibility for mortgages if we are to make any headway in increasing home ownership to a wider band of Kenyans.”

The surge in mortgage interest rates that followed on the CBK rate rises of 2011 has led to a widening in interest rate spreads by the commercial banks, which has yet to be corrected.

The best rate on offer in the third quarter remained 13.5 per cent from CFC Stanbic Bank, underpinned by the Central Bank of Kenya rate of 9 per cent.

But many banks continued to demand a 9 point spread for mortgage rates - a margin that is almost unheard of in any other mortgage market. Notably, the most expensive mortgages continued to be offered by Equity Bank, Diamond Trust Bank, Consolidated Bank, and Family Bank, all at 18 per cent.


Mortgage rates remained largely static in the third quarter, at an average 16.96 per cent. The best rate on offer from the mainstream mortgage market was 13.5 per cent from CFC Stanbic, unchanged from the previous quarter

Seven of the mainstream banks cut rates by between 0.5 and 1.5 percentile points however it was noted that some of the banks like NIC, Chase Bank and Equity Bank are using relationship pricing based on overall business from a customer rather than using a fixed mortgage rate

The maintenance of such high rates saw a slow rate of new mortgage uptake

Some moves, such as the Ezesha loans from HF offering 105 per cent finance, increased access by removing the need for a deposit, but the cost of home loans remained prohibitive for most, seeing less than 1 per cent of the middle class market mortgaged

In urban areas still only a fifth of households live in their own homes, while four-fifths rent. This compares with rural home ownership of some 70 per cent

Taken as an average, interest rate spreads in the mainstream mortgage market are now running at eight points, where they were running at 6 points prior to the rate hikes of 2011.

At the same time slowing house price rises and rent rises brought down rental yields – which combine the returns from rent with the gains in property values –to an annualised 11 per cent in the third quarter, from 12 per cent in the second quarter: seeing further losses for landlords relying on housing finance.

Currently, there are only about 20,000 mortgages in a market of more than 40 million people.

“Even if you look at just the approximately 3.9 million who are deemed to be in the middle income bracket that represents just 0.5 per cent of the potential market,” she said.

Mortgagers needed to consider full financing, to take the pressure of buyers to raise large deposits, and build housing finance products for the self-employed. “Over the last 10 years the number of employed increased from 1.6m to 2.2m people.

During the same period, the number of SME /self employed people increased from 800,000 to 12 million.”

But “when a 'self employed customer' walks to a financier they are sure of one thing – that getting a mortgage is going to prove very difficult,” she said.



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