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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

Speech by Caroline Kariuki,Managing director of Mortgage Company on mortgage report in kenya

Caroline Kariuki, Managing Director,
The Mortgage Company

Thank you, Farhana, Ladies, Gentlemen, and members of the press, for your time and interest today in this second mortgage industry report. There can be few industries quite as relieved as the mortgage industry by last week's news of a final easing in the CBK base rate.

For those of us in the industry, we see home loans as an entry point to asset ownership that is more than a life-time repositioning. Homes, once fully owned, pass on to future generations, representing a permanent change in a family's wealth and costs. However, a mortgage is a long journey, and it is vital that every buyer who signs up for a home loan is positioned to achieve the best possible value and the best possible returns.

Mortgage buyers often pay substantially more month by month than renters, but even at the recent interest rate peaks, normally end up millions of shillings ahead of their renting counterparts. That gain is now set to increase sharply, in an environment of rising rents, and falling interest rates.

That said, for many landlords already locked in at lower rental incomes, and after more than two years of only negligible gains in house prices, the last three quarters have brought lower returns in rent and capital appreciation than the cost of mortgage finance. But we now see that this has been almost an isolated case of such net losses across the previous decade. With rates now falling, rents rising, and house prices set to rise, we forecast a progressive closing in this gap from here, and a return to positive gains for landlords too.

At the same time, for new entrants into the housing market, the last quarter has seen a downwards trend in mortgage costs, with StanChart moving to offer a rate of 16.9 per cent on mortgage takeovers with established credit history, CFC Stanbic cutting its fixed rate to 18.5 per cent, and the volume of non-bank mortgages expanding, at rates of around 14 per cent. Microfinance institutions are also now moving into home loans, although principally for land plots.

We have additionally presented the rates for the leading mortgage lenders, with a spread at the end of June between the most expensive mortgages, from Equity Bank and CFC Stanbic at 24 per cent, to the cheapest, from I&M Bank at 18 per cent, of a full
6 percentile points. In financial terms, the cheapest of these mortgages demands 24 per cent less in payments than the most expensive. This is important.

We have also calculated this time the payments needed to save a deposit and access a mortgage for properties from land plots to stand alone houses. On this basis, we calculate, for example, that saving Sh17,200 a month for five years is enough to access a Sh6m first home.

As it is, Kenya remains a property market where the majority of purchasing is done in cash by buyers wealthy enough to be able to hand over the asking price in one payment.

But, globally, home ownership has become the norm thanks most substantially to the mortgage industry, which enables salary earners to access homes, covering the rental and additionally accumulating an asset that moves into the family for generations. Worldwide, mortgages have served to transform the working classes into classes with assets and wealth. For mortgage brokers such as ourselves, we are always searching for the best mortgage deal for every buyer, and passionately believe in the long- term repositioning of individual families that our industry delivers.

But with every purchase there is the opportunity to get the very best deal available, and the risk of paying far more, and we do believe it is vital to familiarize every potential buyer with the terms on offer, and the returns each and every deal represents for them in the long term.

On which note, we should like to open for your questions, and take the chance, once again, to thank you all for your time and interest in joining us today.

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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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