Mortgages in Kenya
Owning a house in Kenya is one of major landmarks in an individual’s life. It does not matter whether one is rich or poor when it comes to dreaming of owning a house in Kenya. Kenyans take pride in their houses. Even those who are paid peanuts build mabati houses for their use. However, there is another route to take that can enable you get the house you previously only imagined living in. Mortgages in Kenya are fairly new phenomena. This is surprising given that a good number of Kenyans pay huge sums in the form of rent. But as more Kenyans take measures to achieve their resident goals, more banks and companies in Kenya are expanding their mortgage lending.
Types of Mortgages in Kenya
There are two types of Mortgages;
a. Fixed rate mortgages
The borrower will owe a percentage of the loan as interest. This amount never changes and remains constant over the life of the loan.
b. Variable/Adjustable rate mortgages
In this type of loan, changes in the credit market are reflected in the repayment rates. Equal repayments are made on a reducing balance. Part of the interest rate risk is transferred from the lender to the borrower. Variable rate mortgages are widely used where fixed rate funding is difficult to obtain or prohibitively expensive.
Some of the factors that influence the type of mortgage includes:
Interest – this is what banks gain from the loan from the repayments made. Interest may be fixed over the life of the loan or it may be variable, changing at certain predetermined periods. It may rise or it may fall, depending on existing market conditions.
Prepaid amounts – some lenders will limit or restrict prepayment of part or the entire loan. If the borrower decides to prepay, then he may also pay a penalty to the lender for the prepayment.
Amount and frequency of payment – in some cases, lenders may offer the borrower an option to increase or decrease the amount paid, without incurring penalties. The amount paid per period is variable.
Period of the loan – this refers to the time period the loan is lent out for. The borrower may be required to pay the entire amount after that lapsed time period. He may also be required to pay a certain amount at the end of some predetermined period.
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Some of the loans offered by lenders includes:
The Owner Occupied Residential mortgage
This is offered to buyers intending to purchase a house to live in. The mortgage is popular among most borrowers, and lenders may lend up to 90% of the total cost of the property. CFC bank is offering up to a 100% of the home’s value.
This refers to the situation where the borrower intends for the property as an investment and not as their primary home.
This type of mortgage is directed towards construction of property. The lender may require that the project is overseen by professionals, like architects, engineers, and so forth.
The lender normally disburses the money on an arrears basis to the contractor or person contracted to build.
Top up loans and/or equity release
The lender loans out money on the value of the property. Repaying the mortgage allows one to gain equity in that property. This equity can be availed to the borrower as equity release or top up.
Source: kenya Loans
How to Shop for Mortgages in Kenya
A mortgage is a loan taken out to buy a home with the house acting as the collateral. Under rare circumstances will a mortgage be less than your monthly rental. After adding local authority rates, utility bills, furnishing and maintenance bills, you’ll see your monthly costs go up by at least a third of your rent.
You must therefore look at the likely monthly repayments. There are quite a good number of mortage providers in Kenya willing to give you attractive interest rates, including Housing Finance Limited and Savings & Loan – a subsidiary of Kenya Commercial Bank.
Shopping for a mortgage in Kenya can be very frustrating especially for a fist-timer. Here are six important tips for getting a mortgage in Kenya.
Mortgage Rates in Kenya – Mortgages in Kenya: Price of Property
According to real estate agents in Nairobi, property prices in many neighborhoods in the capital have doubled, and in some cases tripled, since 2006. They say the situation is the same in the coastal city of Mombasa, where new residential and commercial buildings are being sold for unprecedented prices, even before the buildings are completed.
Mortgage Rates in Kenya – Mortgages in Kenya: Your Deposit
The higher the deposit you put down, the lower the loan you need to borrow. And of course the lower the amount you want to borrow, the more interest rate options you get. The key criteria in Kenya is always based on whether you are better off reducing your monthly mortgage repayments compared to earning a return in some other form of investment.
Mortgage Rates in Kenya – Mortgages in Kenya: Interest Rates
There are two things you need to know about Kenya interest rates generally, the current rate and the future expectations of where interest rates will go.
Current interest rates in Kenya are set depending on amount you want to borrow and duration (term) you want to borrow for. Variable interest which basically means that it moves as general interest rates. So future expectations become of added importance.
Mortgages in Kenya: Monthly repayments
From the above, you should now have the bits that will help you decide what type of house you’ll buy based on its monthly or annual cost. You just need to consult a housing finance provider on this or just check out for Kenyan real estate websites offering mortgage calculators.
Mortgages in Kenya: Location
This is a feature unique to Kenya where some banks only offer mortgages in specified towns.
Mortgage Rates in Kenya
Despite the banks reacting sharply to the upward changes in the Central Bank Rate, they have been very slow to react to the downward changes in the rates. The Monetary Policy committee has maintained rates at 9.5% therefore, we should see mortgage rates at 13-14%. However the average bank rates remain much higherat a whopping 18%.
Mortgages in Kenya – Making Mortgage Accessible in Kenya
If we are to see the uptake of mortgages increase from 17,000 as per the last official figures to 100,000, we need to focus on several aspects. The mortgage report today focuses on these interventions that can radically shift mortgage uptake and set many Kenyans on the journey towards home ownership.
Funding Mortgages in Kenya
Today , tho funding of morigugos is done primarily through bank deposits making the industry vulnerable to shifts in short-term market liquidity . The impact of this cannot be underestimated with the interest rates in the market moving in October 2011 from an average of 14% to 24 % leaving many mortgage takers in distress after their mortgage payments doubled. Although this position has improved slightly , we require a long term and sustainable solution to funding ofmortgages to give a lasting solution to this challenge.
We need to get cheap long term funds directed towards mortgage financing to enable us move towards single digit interest rates and radically change the affordability of mortgages. In the USA, mortgage rates range around 3.5%. A 2 Bed Apartment in Syokimau of Kes 3.9 million taken for a ten or of 20 years at the best commercial rate in Kenya of 15.5% will cost the home owner approximately Kes 42,357 while the same home at a equivalent US rate of 3.5% would cost the home owner Kes 18,095 per month to mortgage. One can imagine the impact of this shlft in affordability .
To encourage the flow of long term funding we need to seriously look at the possibility of developing a well organised securitization programme where financiers can obtain funding from the capital markets. While REIT s will be great for developers and long-term investors in commercial properties, we need to address the more important aspect of allowing the flow of Pension funds, SACCOs and Insurance funds to the mortgage market.
Affordability of Mortgages in Kenya
Affordable Home ownership is still a pipe dream for most Kenyans. The high landprices and high cost of infrastructure coupled with the developers need to make a profits keep most homes out of reach for most Kenyans.
Government interventions will be necessary to provide an enabling environment. The first being provision of affordable serviced land for developers. The cost of infrastructure adds an additional 20-30% to the cost of homes. If this could beaddressed through infrastructure bondsserviced through utility payments, wecould achieve a significant reduction tothe cost of homes in the country.
The setting up of Counties provides the perfect opportunity to begin development of this model. Secondly , making interest payable on owner occupied homes fully tax deductible up from the current maximum of Kes 150,000.- would encourage many to make this decision. Working to reduce high closing costs of 7-10% of the cost of the home e.g. through reduction of stamp duty would ensurethat many are able to commit to home ownership with ease. Allowing access to pension benefits towards payment of the down payment towards purchase of a home would be a positive way of ensuring that each employed person makes the first step towards home ownership.
For the lowest end of the market, subsidies would be needed to get rid of informal settlements and convert these to simple yet affordable homes for the low income earners.
Mortgage Companies in Kenya
A comprehensive list of all mortgage companies in Kenya, their addresses (postal and physical), contacts (telephone and e-mail) and a link to the mortgages in Kenya company websites.
List of Mortgage Companies in Kenya
- CfC Life
- Commercial Bank of Africa
- Family Bank
- Good Home Mortgage
- National Bank of Kenya
- Ndatani Enterprises Co. Limited
- Rafiki DTM
- Standard Chartered Bank, Kenya Limited