Frontpage Slideshow | Copyright © 2006-2010 JoomlaWorks, a business unit of Nuevvo Webware Ltd.
The Mortgage Company,
The Greenhouse, 2nd Floor
Adams Arcade, Ngong Road
P.O. Box 29310-00100, Nairobi

Tel: +254 729 933955, +254 737 933955
Email: info@tmcafrica.com
www.tmcafrica.com
WATCH TMC VIDEO
Mortgage market energized by new rates and policies PDF Print option in slimbox / lytebox? (info) E-mail

• Standard Chartered moves to promotional 10.9 per cent mortgage rate, marking a step change in mortgage margins

• 5 of the 15 top mainstream mortgage lenders cut rates in the second quarter, Standard Chartered by 3%, KCB by 1.6%, and I&M, Chase and Consolidated by 1%

• The average mortgage rate falls to 16.3% in second quarter, from 17% three months previous

• The introduction by CBK of the Kenya Bankers Reference Rate at 9.13% is set to pull mortgage rates downwards

• The Kenya Bankers Association introduction of APR (annualized percentage rate) is set to reveal the full costs of borrowing

• Together these moves are set to energize the country's mortgage market

• Next steps should be standardizing mortgage paperwork and building products designed for the self employed

 

 

Total returns on mortgaged house purchases

 

A comparison of the costs of a variable mortgage, versus the gains in house price appreciation and rental income in each year.

 

SNAP SHOTS


Average lending rates over the last ten years.

 

 

 

 

 

 

 

 

 

 

SNAP SHOTS

Total returns from a mortgage buy (house price capital appreciation rental income per year) less  the annual cost of a mortgage will illustrate whether or not the mortgage is a profit or loss per year. When the black line rises above the red line, you are making a profit even with the cost of the mortgage.

 

 

 

 

 

 

 

 

Moving In The Right Direction For The Mortgage Sector

Caroline Kariuki, Managing Director of The Mortgage Company provides insights into the mortgage market.

The recent introduction of the Kenya Banks' Reference Rate at 9.13% on 8th July is the first step towards developing a more vibrant mortgage market in Kenya. The KBRR would be the equivalent of the LIBOR (London Interbank Offer Rate) against which all international currencies are priced. The standardization of the offer rate means that the Central Bank rate that previously was ignored by banks in setting up their base rate will now be a serious reference rate for all financiers.

Standard Chartered Bank in launching their mortgage offer of 10.9% p.a. was the first bank to conform to the new rate guidelines quoting the rate as KBRR +1.77%. What this means is that the mortgage rate will be fixed for 6 months until the Central Bank of Kenya reviews the KBRR.

The second great step was in the introduction of the APR (Annual Percentage Rate) or total cost of credit for all lenders.

The APR that was introduced by The Kenya Bankers Association on 1st July 2014 includes interest rates, bank charges and fees including legal, insurance, valuation and government levies. This will promote more transparency in pricing of all loans and full disclosure of the other costs in availing the loans. This will go a long way in enabling borrowers to have a full view of the commitments they are making in taking the loan without any hidden costs.

Positive reporting on the Credit Reference Bureau has also opened up visibility for lenders of the true position of borrowers in terms of credit. The initial reaction is to see individuals as highly exposed, but with time, this will be viewed positively, as being able to handle debt is critical in the financial discipline of long-term commitments.

The highly publicized reform agenda at the Ministry of Lands, Housing & Urban Development is also another positive step towards creating the framework for an enabling mortgage sector. With the digitization of the land records, the titling process will become much more efficient and reliable, therefore opening up the industry for the secondary mortgage market.

With these three great initiatives in place, we need to do two things: the first is the standardization of documentation and the other is the need to critically analyze the unique composition of the market's dynamics to enable us open up the industry to universal acceptance.

In more developed markets, mortgage documentation is standardized so that mortgages are similar despite the originating bank. This means that the application forms and the security documentation are all standardized, and the legal documentation and valuation parameters make mortgages comparable, despite the different service providers. This will be a pre-requisite to having mortgages sold to the secondary market. Given the youthful nature of our market, this is an opportune time to undertake this process.

Kenya is, however, a unique market with different characteristics from the rest of the developed market. We have attempted below to outline some of the unique features that define our market and that will need to be taken into account to facilitate growth and uptake.

1. Kenya is defined by the predominantly self-employed sector, which, to date, has little or no access to mortgages.

The ability to adequately analyze and price risk for this sector will be very important in growing the housing market in future. It is very interesting how the micro finance sector, led by Equity Bank, has found ways in analyzing business related risk and yet these institutions have not been able to finance the home market using a similar model. The unique features of the sector do not lend themselves to the traditional mortgages designed for long term regular income and yet, if Micro lenders can meet business obligations, we surely can overcome the barrier of designing products that will facilitate home ownership in this segment. Perhaps Government intervention through the introduction of a Guarantee scheme will reduce the perceived risk of lenders, or the combination of a savings and loan product, where the borrowers save up for some time to create a buffer for any defaults.

2. Funding the mortgage sector will need to be done differently as bank deposits are neither sufficient nor well matched in risk and tenor. The introduction of the higher premiums for pension funds may be the opening that the market requires to find well-matched liquidity for the mortgage sector. If this is well structured, we need not put our pensions at risk, but facilitate the much needed funding to sustain and grow our home ownership levels.

3. Our economy is agriculture based and while in most rural settings the population owns their homes, the issue here is the quality of housing that is there. Incremental housing models that tie in income from agricultural cycles and home improvement finance would be a definite opening for the sector where a self build model would be better suited. With Kenya being the 2nd most developed financial market after South Africa in terms of financial access, it would be easy to translate the regular inflows from milk, tomatoes, sugarcane, tea and coffee into regular flows for housing finance.

In conclusion, Kenya is moving towards a great space with mortgage lenders having more information to make better credit decisions and buyers having better protection from lenders with a full view of the cost of credit. Exciting times are coming with the banks taking a more competitive stance and the margins beginning to narrow. Once the CBK takes on a more aggressive KBRR, we should see the mortgage sector heading in the right direction of lower cost of debt and the mortgage uptake becoming a norm rather than an exception.

 

 

 

FacebookTwitterLinkedin

Did you know

Rents now rising at ten times the rate of last two years

  • House prices remained resilient, despite the high mortgage rates, with asking prices up 1.3 per cent on previous quarter
  • Closing prices across all houses rose by 0.5 per cent
  • The strongest house price gains came from stand alone houses, where asking prices rose by a significant 2.9 per cent, reversing the price falls of last year
  • Town houses continued to track upwards steadily on asking prices, up 1.1 per cent on March prices, and 6.8 per cent on a year earlier
  • Asking rents are now climbing rapidly, at ten times the rate during 2010 and 2011
  • Asking rents across all properties were almost flat from September 2009 to September 2011, rising just 1.5 per cent over the two years
  • In the nine months since September last year, asking rents across all properties have risen by 7.9 per cent, with 6.6 percent of that increase in the first half of 2012
  • The rental rises have been sharpest for apartments, up 10.33 per cent in the nine months since September last year

Index Highlights:

THE HASS COMPOSITE SALES INDEX YEAR TO Q2
THE HASS COMPOSITE LETTINGS INDEX YEAR TO Q2

HassConsult today announces the results for the second quarter 2012 of its house price and rentals indices, revealing ongoing hikes in rentals against a backdrop of stable house prices. The rise in asking rentals is now running at 10 times the rate during 2010 and 2011, when rents were close to static. From September 2009 to September 2011, the asking prices for rents rose by just 1.5 per cent in total.

However, rising property costs, inflation and - seemingly instrumentally - interest rates, have led to a sharp take-off in rents, now sustained for three successive quarters. Since the end of September last year asking rents across all property types have risen by 7.9 per cent, with 6.6 per cent of that increase falling in the first half of 2012. The sharpest rises are happening in apartment rents, which have risen 10.33 per cent since the climb in rents began at the end of September last year, and 8.1 per cent since the beginning of 2012.

“This surge in rental prices comes as landlords cover higher finance and other costs, and at a time when there is an increased volume of people seeking the same pool of rental properties, as potential homeowners hold off from purchasing,” said Ms Farhana Hassanali-Hashmani, Property Development Manager at HassConsult.

“It is a rise that starkly brings home the immediate impact on all Kenyans of the bottleneck caused in building and buying by pushing finance out of reach for many developers and mortgaged homeowners,” she said. Against this backdrop, Hass welcomed wholeheartedly the first move by the CBK to bring down interest rates, with the cut in the base rate last week from 18 per cent to 16.5 per cent. “The prevailing monetary policy has represented a 'closedown' for home developers in a country where we are severely short of good homes,” said Ms Hassanali-Hashmani.

However, following the decision to cut the frequency of meetings for the Monetary Policy Committee that sets interest rates, to once every two months, HassConsult urged the committee to work as rapidly as possible to bring interest rates down to a more normal and viable level by global standards.
“The hope of attracting foreign funds through top-end rates cannot be ignored, but the impact on ordinary Kenyans of hobbling the real estate industry and creating new rent surges must be considered too in the CBK's efforts to maintain exchange rates at their current levels.”

Also reporting on house prices, HassConsult revealed ongoing stability and even some small gains, with overall closure prices across all types of property rising by 0.5 per cent in the last three months, while asking prices rose by 1.3 per cent. Within this overall figure came some first signs of substantial price growth in standalone houses, where asking prices have risen by 2.7 per cent in the 12 weeks since the end of March, reversing earlier price falls.

Town houses also continued to record gains in asking prices, by another 1.1 per cent in the last three months, to make for an annual increase of 6.8 per cent – the strongest in any segment in the last year. “With interest rates now down and expected to fall further, and much building shelved, we now forecast greater trends towards house price growth, which are likely to set in for some time before we see any relief in the current rate of rent rises,” said Ms Hassanali-Hashmani.

For more information contact:
Farhana Hassanali-Hashmani
HassConsult
020 4446914/0722 204 765/0733629 786


SNAP SHOTS:

  • The Hass Composite sales Index is representative of all property for sale in Kenya
  • Property values have increased by 3.14 times since 2000
  • The index shows a property price rise of 1.3% in the last quarter and a 0.9% rise in the last year.

SNAP SHOTS:

  • The annual average is representative of the average price of all properties offered for sale in Kenya.
  • The average value for a property has gone from 7.1 million in December 2000 to 22.5 million in June 2012.
  • The average value for a 4-6 bedroom property is currently 31.4 million.
  • The average value for a 1-3 bedroom property is currently 11.1 million.

 

SNAP SHOTS:

  • The Mix by Year is a measure of the percentage that each type of property represents in the market.
  • In 2001, apartments took up 23.5% of the market, Town Houses took up 24.5% of the market and Stand alone houses took up 52% of the market.
  • In 2012 however, apartments took up 43.6% of the market, Town Houses took up 26.9% of the market and Stand alone houses took up 29.5% of the market

SNAP SHOTS:

  • Stand Alone houses include houses, bungalows, cottages and villas either on their own plot or in a gated community.
  • Property values for stand alone houses have increased by 3.7 times since 2001, a 2.7% rise in the last quarter and a 1.9 rise in the last year.
  • The average price for a stand alone house is currently 32.6 million up from 8.8 million in December 2000

SNAP SHOTS:

  • Town houses include townhouses and maisonettes that are semi-detached or terraced.
  • Property values for town houses have increased by 2.9 times since 2001, a 1.1% rise in the last quarter and a 6.8% rise in the
    last year.
  • The average price for a town house is currently 19.1 million up from 6.5 million in December 2000.

SNAP SHOTS:

  • Apartments include apartments, duplexes and triplexes.
  • Property values for apartments have increased by 2.2 times since 2001, a 0.5% rise in the last quarter and a 3.0% rise in the
    last year.
  • The average price for an apartment is currently 11.7 million up from 5.2 million in December 2000.Apartments include apartments, duplexes and triplexes.

SNAP SHOTS:

  • The Hass Composite Letting Index is representative of all property for rental in Kenya
  • Rents have increased by 2.6 times since 2001
  • The index shows rents have risen by 2.2% in the last quarter but have risen by 7.7% in the last year

SNAP SHOTS:

  • The annual average is representative of the average rent of all properties offered to let in Kenya.
  • The average rental for a property has gone from Kshs. 38,516 in December 2000 to Kshs. 102,044 in June 2012.
  • The average rent for a 4-6 bedroom property is currently Kshs. 148,998
    The average rent for a 1-3 bedroom property is currently Kshs. 60,122

SNAP SHOTS:

  • The Mix by Year is a measure of the percentage that each type of property represents in the market.
  • In 2001, apartments took up 45.3% of the market, Town Houses took up 20.5% of the market and Stand alone houses took up 34.1% of the market.
  • In 2012 however, apartments took up 56.3% of the market, Town Houses took up 19.6% of the market and Stand alone houses took up 24.1% of the market

SNAP SHOTS:

  • Stand Alone houses include houses, bungalows, cottages and villas either on their own plot or in a gated community.
  • Rental values for stand alone houses have increased by 2.7 times since 2001, a 2.3% rise in the last quarter and a 8.3% rise in the last year. The average rental for a stand alone house is currently Kshs. 156,396 up from Kshs. 56,959 in December 2000.

SNAP SHOTS:

  • Town houses include townhouses and maisonettes that are semi-detached or terraced.
  • Rental values for town houses have increased by 2.3 times since 2001, a 2.9% rise in the last quarter and a 4.1% rise in the last year. The average rental for a town house is currently Kshs. 99,288 up from Kshs. 42,688 in December 2000.

SNAP SHOTS:

  • Apartments include apartments, duplexes and triplexes.
  • Rental values for apartments have increased by 2.8 times since 2001, 2.4% rise in the last quarter and an 11.7% rise in the last year. The average rent for an apartment is currently Kshs. 64,295 up from Kshs. 21,638 in December 2000.
Talk to us

First time buyers promise

  • Learn about mortgages
  • Guide you through the process
  • Help you on get on the property ladder

Speak to our friendly experts
Call +254 729 933955
Click tmcafrica.com