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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.



Average lending rates over the last ten years.












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.





Did you know

CBK rate cuts spark real estate

back to life

  • Developers and sellers pushed up asking prices in Q3.
  • Early in the quarter, buying activity had dropped to 2-year lows.
  • September marked a sharp rise in enquiries, viewings and completions.
  • Town house sales, where asking prices rose by 1.2 per cent in the quarter, performed better in September.
  • But so did stand alone houses, where prices rose by 3.4 per cent.
  • However, apartment prices recorded the sharpest rise, at 3.6 per cent.
  • Asking rents also rose sharply, by 4.2 per cent for apartments.
  • Activity in the rentals market also dipped, with fewer viewings and closures, but the drop was more marginal.
  • The rentals market appeared to have been able to sustain the rent rises rolled out in the three months.


Index Highlights

With all eyes on tumbling mortgage rates in the third quarter, property asking prices jumped in the last three months on
hopes of renewed activity, reported HassConsult, as it unveiled its third quarter property indices and drew on new
“activity” indicators based on levels of real estate enquiries, viewings and completions.
In a further expansion of the consultancy's real estate data collection offering new insights into market reactions and
uptake, Hass reported that the rental market largely absorbed the price increases of the third quarter, while properties
for sale recovered from their lowest levels in two years driven by a renewed uptake of standalone houses during
Overall, sales asking prices rose by 5.1 per cent, with the sharpest rise in apartments, up 3.6 per cent on the previous
quarter, followed by stand alone houses, up by 3.4 per cent. Price rises were more moderate for town houses, with sales
picking up sharply in September.
“We believe it is a correct analysis that as mortgages become more affordable and available, pent-up demand for
property buying will bring higher levels of sales activity. However, with property so fully priced in this market, sellers
seeking higher returns ahead of that surge in demand deterred some buyers in July and August rather than securing
greater revenues,” said Ms Sakina Hassanali, Head of Marketing and Research at HassConsult.
"September, however, saw a renewed appetite for buying, and comfort with the new price levels, offering relief for
developers, many of whom were becoming seriously stretched. The return to more normal levels of buying has come as a
return to life for the sector."
Meanwhile, in the rentals market, the overall rise in asking rents was 4.5 per cent in the third quarter, with the steepest
rise in apartment rents, up 4.2 per cent, followed by standalone houses, up 3.6 per cent. Town house asking rents also
rose 2.8 per cent over the previous three months.
With much of this re-pricing absorbed into the market, the returns for landlords recovered significantly across the
quarter, to a combined 13.81 per cent, across both rental yields and house price appreciation.
“The swelling in demand for rentals as those who would have been first-time buyers have stayed in the rental pool, even
as new entrants arrive, is fueling some continuing rent rises, although we do see signs of some slowing in viewing and
completions,” said Ms Hassanali.
“This rental correction was overdue for many landlords, after some years of stagnating rents, and is now closing the gap in
returns for mortgage-financed landlords that appeared after the mortgage rate rises.”

For more information, please contact:
Sakina Hassanali - Head of Marketing & Research
HassConsult Ltd
ABC Place, Westlands
Tel: +254 020 4446914




  • 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 3.83 times since 2001, a 3.4% rise in the last quarter and a 7.3% rise in the last year. The average price for a stand alone house is currently 33.7 million up from 8.8 million in December 2000.



  • Town houses include townhouses and maisonettes that are semi-detached or terraced.
  • Property values for town houses have increased by 2.95 times since 2001, a 1.2% rise in the last quarter and a 7.2% rise in the last year. The average price for a town house is currently 19.3 million up from 6.5 million in December 2000.



  • Apartments include apartments, duplexes and triplexes.
  • Property values for apartments have increased by 2.33 times since 2001, a 3.6% rise in the last quarter and an 6.0% rise in the last year. The average price for an apartment is currently 12.1 million up from 5.2 million in December 2000.



  • 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 2.85 times since 2001, a 3.6% rise in the last quarter and a 12.8 rise in the last year. The average rental for a stand alone house is currently Kshs. 162,082 up from Kshs. 56,959 in December 2000.


  • Town houses include townhouses and maisonettes that are semi-detached or terraced.
  • Rental values for town houses have increased by 2.39 times since 2001, a 2.8% rise in the last quarter and a 9.1% rise in the last year. The average rental for a town house is currently Kshs. 102,048 up from Kshs. 42,688 in December 2000.


  • Apartments include apartments, duplexes and triplexes.
  • Rental values for apartments have increased by 2.88 times since 2001, 4.2% rise in the last quarter and aa 15.0% rise in the last year. The average rent for an apartment is currently Kshs. 66,987 up from Kshs. 21,638 in December 2000.
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