Banks to Offer 20-Year Mortgages at 7% in New Deal

Kenyans earning monthly salaries of Sh150,000 and below will from next month access mortgages from local commercial banks and saccos at a maximum annual subsidised interest of seven per cent, in a move likely to escalate the uptake of home loans in the country.

This follows the establishment of a State-backed Kenya Mortgage Refinance Company (KMRC) that will advance cash to financial institutions at an annual interest of five per cent for onward lending to homebuyers at seven per cent, nearly half the current market rates.

Treasury Cabinet Secretary Ukur Yatani told Parliament last week that the “highly concessional rate of five per cent” will enable banks to “disburse the money to applicants wishing to purchase affordable housing at not more than seven per cent.”

Prospective buyers will qualify for mortgages of up to Sh4 million with a repayment period of up to 20 years. This will commit the buyer to a monthly repayment of Sh31,000 for 240 months, down from Sh46,863 on the prevailing market rates.

Individuals earning monthly salaries of more than Sh150,000 will access home loans at prevailing market rates with the KMRC only tasked with mobilising more funds for mortgages and shielding lenders from losses related to non-repayment of loans.

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KMRC is 20 per cent owned by the Kenyan government with 11 deposit-taking saccos, eight commercial, and one micro financial institution holding a shared 80 per cent stake.

The non-deposit-taking lender has so far mobilised Sh37.2 billion – a mere drop in the ocean considering that the 26,187 mortgage accounts held by commercial banks as at the end of 2018 were collectively valued at Sh223 billion according to figures from the Central Bank.

The KMRC pact is expected to more than double the number of mortgage accounts in Kenya to 60,000 by 2022, which translates to about 12,000 additional accounts per year.  

The deal comes at a time when commercial banks are increasingly declining to provide home loans to individual homeowners amid a spike in mortgage defaults.

According to the CBK, non-performing mortgages (loans that remain unserviced for more than three months) rose 41 per cent to Sh38 billion in 2018, pointing to prevalent agony in the Kenyan real estate sector as the local economy continues a long run of stagnancy.

This has seen a huge number of homeowners losing their properties to aggressive creditors looking to clean up their loan books – leading to a countrywide glut of repossessed homes.

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