Kenyans’ Appetite For Home Ownership Leads to Increase Mortgage Consumption

According to the Central Bank of Kenya’s Bank Supervision Annual Report 2017, Kenyan increased appetite for home ownership saw an increased uptake of mortgages from banks in 2017.

The value of mortgage loan assets outstanding increased by 1.5 percent from 219.9 billion shillings in December 2016, to 223.2 billion shillings in December 2017 due to the increased appetite for home ownership as opposed to rentals.

The number of mortgage loan accounts increased by 8.8 percent from 24,059 accounts in December 2016 to 26,187 accounts in December 2017 as a result of increased appetite for home ownership as opposed to rentals.

On the mortgage loan characteristics, the interest rate charged on mortgages averaged at 13.6 percent in 2017, compared to 18.7 percent in 2016, excluding bank and other charges. This decrease is attributable to the interest rate capping effected in September 2016.

The maximum loan as a percentage of property value also referred to as the loan to value, remained constant at 90.0 percent for the majority of the banks both in 2016 and 201.

The main factors considered by institutions before approving mortgage loans for households were:

1. Sustainability of the borrower income, depending on the terms of payment
2. The credit history of the borrower
3. Property location and ease of sale in the case of default,
4. The ability and willingness of the buyer to repay the loan
5. The legitimacy of the property;

On lending to businesses, the survey indicated that the main risk factors examined by institutions include:

1. The profitability of the business owner,
2. The economic stability of the business,
3. The experience of the management in the running of the particular business,
4. The length of the business operation,
5. The business’s ability to pay the loan from its cash flows,
6. The business’s credit history and the status of existing debts;

The main obstacles facing the mortgage market in 2017 included:

1. The high cost of housing units,
2. The high cost of land for construction, high incidental cost,
3. Difficulties with property registration, unlike in 2016 where low-income levels were cited as the major impediment

The financial institutions highlighted several measures which on implementation, are expected to result in the improvement of the mortgage market. In 2018, the mortgage market is expected to record increased activities.