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Mortgage Special Report Q4 2013 PDF Print option in slimbox / lytebox? (info) E-mail

Commercial banks hold on to high mortgage rates,with scant funds to lend

• Mortgage rates were stable in the fourth quarter, with rises only on the expiry of Q3 promotional offers from Barclays
and CFC Stanbic
• The average mortgage rate in Q4 was 16.89 per cent
• Standard Chartered Bank continues to offer the most competitive interest rate currently standing at 13.9% and United
States Dollar Mortgages at 5.9%
• National Bank of Kenya has revamped their mortgage product however their rate has remained the same at 15.45%.
• With the Central Bank of Kenya base rate stable at 8.5 per cent, five Kenyan commercial banks held on to mortgage
rates priced more than 9 percentile points above the base rate
• The banks with a spread of 9.5 to 10.5 percentile points were Equity Bank, Family Bank, Chase Bank, Diamond Trust
Bank and Consolidated Bank

Promises of narrowing spreads from Kenya's mainstream mortgage lenders after the uncertainty of last year's,
elections were yet to bear fruit in the fourth quarter of last year, reported Carol Kariuki, Managing Director of
The Mortgage Company, as she presented the TMC Mortgage Report for the fourth quarter of 2013.
Overall, mortgage rates remained unchanged in the fourth quarter, at an average 16.89 per cent. But both
Standard Chartered and CFC Stanbic ended their third quarter promotional offers. Barclays Bank also increased
rate rise from 14.9 per cent to 15.5 per cent, and CFC Stanbic from 13.5 per cent to 15.5 per cent.
Standard Chartered Bank offered the most competitive mortgage rate in the quarter, with their limited
Christmas offer at 12.9 per cent.
Front runners in the sector continued to be Standard Chartered, CFC Stanbic, Barclays, and among local lenders
National Bank and Housing Finance.
At the back of the pack, Consolidated Bank continued to offer the country's most expensive mortgages at 19 per
cent, followed closely by Equity Bank, Family Bank, Diamond Trust Bank and Chase Bank, all at 18 per cent.
Many of these banks focused on pricing mortgages based on a case-by-case basis based on the relationship
with the customer.
“With the Central Bank of Kenya rate stable at 8.5 per cent, the unusually wide spread on these bottom end
rates, at around 10 percentile points, reflects some lack of interest and funds for mortgage lending by these
banks,” said Ms Kariuki.
“They are being priced to reduce demand,” she said.
The high pricing has continued to limit the uptake of mortgages, with now a prolonged impact on house pricing,
and on the returns on property as an investment.
“It is vital to understand that if we continue to step up the demand for housing with an underdeveloped
mortgage market, the casualty, in the end, will be Kenya's entire property market, possibly with an impact as
severe as falling house prices,” she said.
‘’The market needs a radical shift to free up long term funding for mortgages through establishment of a
secondary mortgage market. This is the only way that Kenya will see a significant increase in mortgage uptake
and home ownership. There has been much talk but very little action, Kenyans need a proactive response
towards this end.’’ she said.


The Mortgage Market over 10 years

The Mortgage Market: 2013

Snap shots of the mortgage market over 2013, including a look at commercial bank lending rates versus CBK rates
as well as total returns on mortgaged property.


Average lending rates (Commercial Banks'
Weighted Average Interest Rates) over the last
ten years versus the Central Bank Rate



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

When the black line rises above the red line, you
are making a profit even with the cost of the


The Mortgage Market: 2013

Snap shots of the mortgage market over 2013, including a look at commercial bank lending rates versus CBK rates
as well as total returns on mortgaged property.


Average lending rates (Commercial Banks'
Weighted Average Interest Rates) versus the
Central Bank Rate in 2013.




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
When the black line rises above the red line, you
are making a profit even with the cost of the




Beyond Interest Rates – What Will Define The Mortgage Industry 2014

Caroline Kariuki, Managing Director of The Mortgage Company provides insights into the year ahead.
In previous reports we have focused heavily on the importance of brining down interest rates to encourage mortgage
affordability and penetration in the country. Competitive advantage for industry players will be defined by the ability of
financiers to crack some issues that remain unanswered.
Credit Assessment
While many commercial banks have shown interest in availing mortgages in the market , credit assessment remains poor
at best. Mortgage applications take at least 2 to 4 weeks to have the initial indication of financier's interest. Once this is
provided, meeting the long list of requirements becomes an onerous task that only those with serious determination to
see the process through ever complete the mortgage draw down process. Many financiers hold large portfolios of
“approved held pending draw down” meaning that either the completion of the homes remains a challenge or that the
customers gave up waiting for approval and found other ways of financing their homes.
For the SMEs, most financiers shy away from even touching an SME request. Even when they do, the criteria is so stringent
and the rental income so heavily discounted that many that dare approach a financier give up along the way.
Notwithstanding all these people currently live in rental accommodation which they faithfully pay rent each month end.
Posing the question, what is more stable an employment income (one could lose their job) or rental income for a house
that will be there for the next 20 years?
With increased credit information and the recent enhancements where we have Full File Credit Information sharing
(FFCIS), we can begin to have a more robust system of assessing credit scores for individuals and we challenge financiers

to use this to ease the process and enable SMEs access credit more easily. Automation ofcredit assessment as is common
in other markets should enhance the current challenges where the subjectivity of credit assessment leads to delays in
approval of facilities.
Process of Loan Approval
Many of our financiers are very excited when receiving credit applications but thereafter the customer is taken through a
long protracted process to provide documentation which seems as though the financier disproves everything that the
customer says. The process is not standard and neither is the documentation requested standard, at this stage it appears
to be analysis paralysis. When finally the customer gets the facility, the security perfection process is long and protracted.

The computerisation of the titles at lands office needs to be expedited to facilitate transactions both from a time
perspective and to ensure the authenticity of title documentation.
Long Term Funding
The current funding model does not lend itself to enhancing growth of the industry. All financiers use their balance
sheets, hold the mortgages in their books and use short term funding to finance mortgages.
The development of the Secondary mortgage market has been spoken about many times but cannot be over-
Firstly it will reduce the cost of funding for the industry therefore allowing more people access to mortgage financing.
Secondly the secondary market allows the long term financiers such as pension funds and insurance companies
investment opportunities in a safe manner. Currently very little of the funding from these institutions are channelled to
real estate save from purchase of large commercial buildings with a rental yield of 4-6% per annum. Imagine if we could
get mortgages at this rates and what impact his would have on the industry and the economy.
Thirdly, this would provide the home owners with access to 30-year fixed rate mortgages. Imagine owning your home for
30 years enjoying no rental increases and having capital gains tax at a monthly cost lower than your current rent! This
would be a catalyst for the exponential growth of the mortgage sector in this country and beyond.
Finally this will provide the market with liquidity to allow the funding of more mortgages without the restrictions of the
financier's core capital and reserves.
Encouraging First Time Home Buyers
The current closing costs in Mortgage transactions can be prohibitive to many where savings are in short supply. In
countries where home ownership penetration has grown the Government has either had to chip in to force savings as in
the famous Singapore model or create incentives that encourage first time home buyers through very attractive tax
incentives. In Kenya, these incentives are not aligned to the market realities – the developers who can access incentives
can only do so for homes not exceeding Kes 1.6 million. Given the rise in cost of land, construction and the many taxes
introduced to the “booming” sector, Government is not addressing the housing challenge . The interest component that
qualifies for tax is quite limiting and does not provide adequate relief for the new home buyers.
World over the affordable housing market cannot purely be the responsibility of the private sector. Subsidies are the only
way to support this sector. Institutions such as National Housing Corporation should focus primarily on this sector leaving
well served middle income housing to the private sector to service.




Did you know

Buy-to-let gains recovering as

mortgage prices fall

  • Mortgage rates have dropped sharply in the last two months
  • The best mainstream mortgage offer is now Barclays at 15.5 per cent
  • The highest mainstream mortgage offers are now from National Bank and Chase Bank at 22 per cent
  • The comprehensive cuts have seen the average mortgage rate move to 19 per cent, from 22.5 per cent in the second
  • Foreign currency mortgages are being made available at much lower rates still, from 9 to 10.25 per cent, but carry
    heavy exchange rate risk
  • The third quarter brought a sharp recovery in the combined returns from rents and house price rises for buy-to-lets, to
    13.12 per cent in September, up from 6.81 per cent in June 2012

Mortgage rates declined, in some cases by as much as 6 percentile points, in the third quarter of 2012, reported The
Mortgage Company in its quarterly mortgage report.
At the same time, the returns from buy-to-lets jumped sharply, significantly narrowing the gap between returns and
borrowing costs.
The biggest rate cuts since June came from Barclays, which cut its mortgage rate by 6.4 percentile points, to offer the
currently lowest mortgage rate in the mainstream market, at 15.5 per cent.
Other notable cuts came from HFCK, which cut its rates by 5 percentile points to 18 per cent, and Equity Bank, which cut
its rate by 3 points to 21 per cent.
However, many mainstream banks were slow to follow, finally announcing cuts this week. This latest realignment has
moved the average mortgage rate to 19 per cent, and sees National Bank and Chase Bank topping the league for the
country's most expensive mainstream mortgages, at an annual interest rate of 22 per cent.
“Some mortgage takers are really suffering through holding mortgages with some of the country's most expensive
suppliers - in some cases now paying several hundred thousand shillings in extra interest payments a year,” said Ms Carol
Kariuki, the MD of The Mortgage Company (TMC).
“This, alone, brings home the need for full information flows on the different mortgage rates available in the market, so
that consumers can choose genuinely competitive mortgage offers,” she said.
TMC also published its first league table on the foreign currency mortgage rates available in Kenya from I&M Bank, CFC
Stanbic, CBA, Equity Bank and Bank of Africa.
“With interest rates on these mortgages running at between 9 and 10.25 per cent, these mortgages are currently far
cheaper than shilling-denominated mortgages, but mortgage takers need to take great care with foreign currency
mortgages, where repayments are in dollars, pounds or Euros. When the exchange rate moves against them, it can leave
them carrying huge extra burdens in buying the foreign currency for their mortgage repayments,” said Ms Kariuki.
For mortgage financed landlords, who for the last decade, were earning more from rent and house price appreciation
than they were paying in mortgage interest, the last year brought a marked dip into negative returns.
However, the gap between gains on buy-to-let houses and pay-outs on mortgage interest narrowed sharply in the third
quarter, with buy-to-let returns climbing to reach 13.81 per cent by September, from 6.81 per cent in June.

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.

How recent rate cuts are leading to

big savings on repayments

Scenario: A Kshs. 10m mortgage (20% deposit) over 20 years based on the
best rate available at that time.


A 3.5% rate cut from April 2012 to October 2012 led to a 16.5% reduction in monthly repayments.
A 2.1% rate cut from April 2012 to July 2012 led to a 11% reduction in monthly repayments.
A 1.4% rate cut from July 2012 to October 2012 led to a 6% reduction in monthly repayments.

Preferential Rate Mortgages

Did you know that high net worth individuals and preferential clients can sometimes get better rates?

Mortgages available to the diaspora

At a glance, banks best rates for foreign currency mortgages available to those earning an income in
US Dollars, GB Pounds or Euros including but not limited to the diaspora.

How Kenyan property yielded better returns for the diaspora

over the last ten years

Scenario: Buying a Kshs. 10m home in Kenya with a 20% deposit and a 9%* interest rate over a 10 year period yielded
a return of Kshs. 18.9m while buying a home in the US with a 20% deposit and a 3%* interest rate over a 10 year period yielded
a return of Kshs. 3.7m. This is because property in Kenya over the last ten years has appreciated on average 331%
versus 50% for US properties. *Return is calculated by subtracting total cost of home from value of property at period end

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