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The Mortgage Company,
The Greenhouse, 2nd Floor
Adams Arcade, Ngong Road
P.O. Box 29310-00100, Nairobi

Tel: +254 729 933955, +254 737 933955

Expensive mortgages act as clamp on home ownership growth

• 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

The Mortgage Company today unveiled The Mortgage Report for the third quarter of 2013 with a call 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 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.

Taken as an average, interest rate spreads in the mainstream mortgage market are now running at 8 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.

“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,” said Carol Kariuki, Managing Director of The Mortgage Company.

“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.”

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 3.9m 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.

For more information, please contact:

Carol Kariuki

Managing Director

The Mortgage Company

The Affordability and Eligibility Question

In Kenya there are estimated to be about 20,000 mortgages currently in the market in a population of over 40 million people. Even if you look at just the approximately 3.9m who are deemed to be in the middle income bracket that represents just 0.5 per cent of the potential market.

This is very low compared with other nations. The UK for example has 9.2 million mortgages representing 37.3 per cent of households and the US has 44.5 million mortgages representing 59.3 per cent of households. Closer to home, residential mortgages represent 56 per cent of all leading South African households.

The problem is all the more acute in Kenya's urban areas where less than 20 per cent of the population are living in their own homes,compared with almost 70 per cent in rural areas.

The high cost of property in metropolitan areas like Nairobi combined with the high interest rates mean that most can only afford to

rent rather than take a mortgage to buy.


Today's mortgage market in Kenya faces two major issues which must be addressed in order to allow the growth of lending,  Affordability & Eligibility

Affordability is something we have spoke about many times before. A market best lending rate of 13.5 per cent is still too high for

most Kenyans and we need to see this rate come down to single digits to really push the market forward.

One way to help with affordability is for the lenders to remove the need for a deposit and to help finance the cost of the fees. This is  exactly what Housing Finance have done with the recently introduced “Ezesha” loans, which allow customers to borrow 105 per cent of the value of mortgage property, which includes 100 per cent of the value of the property. This includes four per cent to cover stamp duty fees and one per cent to cover legal and valuation fees, which a customer is eligible to pay. With closing costs amounting to approximately 18 per cent of the property value, the company will cover 15 per cent of the value of the closing costs, meaning the customer will still have to come up with three per cent of the value of these costs

Eligibility is the second major issue. Over the last 10 years the number of employed increased from 1.6 million to 2.2 million people.


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

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 as “proof of regular income” is totally lacking for SME customers. The problem being that the banks with require 3 years audited accounts and will normally take an average over the period rather than the current income in year 3.

The irony is that the very same SME employees can easily get loans from the same financier because they have a pay slip. It suffices to say that although the financiers are relying on income from the SME to pay the employee to enable them give the loan, they often consider the SME itself not credit worthy.

This is not an issue that is singular to Kenya and one possible method that could be adopted is similar to what has been introduced in the UK and US and that is for banks to accept a self employed person or the SME's electronic tax return as proof of income. This has a couple of major benefits as it allows the self employed/SME to easily prove their current income and it encourages full declaration for tax, as the more you declare the more you can borrow, which of course leads to higher tax collection.

Whether or not this can be adopted the question remains what more can be done to make more Kenyans eligible for mortgages and to then make those mortgages more affordable to ensure that home ownership in Kenya's urban areas becomes the norm and not the exception.




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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