News Column

Property Prices Push Up Home Loan Amount

June 11, 2014

James Waithaka



The average mortgage loan size has increased for the third consecutive year, the Central Bank's residential mortgage survey for 2013 shows, indicating fast-paced growth in property prices.

Homebuyers took up an average mortgage loan of Sh6.9 million, which was 68.3 per cent higher than that of 2010 at Sh4.1 million.

In its report for 2011, CBK said the increase to Sh5.7 million could be "partly attributed to increase in property prices". The average mortgage loan size was Sh6.4 million in 2012.

Lenders cited high interest rates a key obstacle in mortgage uptake, a factor that also increased the amount of non-performing loans in the period as overburdened homebuyers gave in.

The CBK said a lag-effect of high interest rates in 2012 continued to impact on the mortgage market negatively, increasing NPLs to Sh8.5 billion from Sh6.9 billion in 2012.

"The interest rates charged on mortgages on average was 16.37 per cent and ranged between 8.5 per cent and 22 per cent," CBK states in the report.

A recent survey by The Mortgage Company showed that only 30 per cent of Kenya's urban population can afford a house priced up to Sh700,000 even at low interest rates of 13.9 per cent.

"... banks identified high interest rates, low levels of income and lack of access to long-term funds as the major impediments to the growth of their mortgage portfolios," the CBK states.

Thirty-six banks were offering commercial mortgages in the year, with five lenders continuing to dominate the market. The lenders - Housing Finance, KCB, CFC Stanbic, StanChart and Co-op Bank - controlled about 70 per cent of mortgage lending last year totalling to Sh96.9 billion.

"The same institutions dominated the mortgage market based on the 2012 survey," CBK said.

The number of mortgage loans increased by 1,292 to 19,879 in 2013, with nearly all the loans on variable interest rate basis (97.4 per cent). As a result, the value of the mortgage loans increased to Sh138.1 billion from Sh119.6 billion in 2012.

Lenders now want the State to support the National Housing Corporation, which has performed dismally over the years and is riddled with corruption, to boost housing supply and stabilise prices.

CBK said banks are also calling for digitisation of Lands records to reduce time taken to transfer properties, while valuation should be standardised "to avoid arbitrary pricing of properties".

They also want a property index established to guide the public on property prices by eliminating speculative hikes.

Bank respondents also said a secondary mortgage market would provide an alternative source of mortgage financing, while full disclosure of all charges related to mortgage funding would enable buyers make informed decisions.

Lenders also want the government to consider reducing the stamp duty, which is charge when transferring properties, and levies on construction materials so as to bring down the overall housing prices.


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Source: AllAfrica


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