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
PDF Print option in slimbox / lytebox? (info) E-mail

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.

 

 

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