Crippled dreams

Mortgage borrowers, who had taken loans at low interest rates, are now being forced to abandon their plans of owning a home because of high interest rates that have driven repayments beyond their reach, writes HAROLD AYODO

Increasing interest rates charged on loans has worsened mortgage uptake in Kenya and forced prospective homeowners to look for alternative ways of owning homes.

Less than two years ago, commercial banks and mortgage institutions charged an interest rate of

Trudie Rattray, Director, Viliking Enterprises Limited

about 14 per cent, which was unaffordable for many Kenyans. The situation is now worse with many charging between 19 per cent and 24 per cent, ranking them among the highest in the world.

To allow the mortgage firms and banks to adjust their interest rates, a hidden clause, which indicates that interest rates would be pegged on inflation rates or trends, is incorporated in the agreement.

The situation has forced many borrowers to drastically raise their monthly installments to match the new interest rates.

Tom Njoroge and his wife Joyce are among borrowers who are paying dearly due to the increased interest rates. Three years ago, the couple took a mortgage of Sh5 million to buy a house in Mlolongo, Nairobi, at an interest rate of ten per cent. The interest rate has now more than doubled to 23 per cent, leaving the couple stranded.

They were to pay monthly instalments of Sh53,730 for 15 years, making the total Sh9,607,486. This changed last year when the commercial bank sent them a letter indicating that the interest rates had been adjusted to 23 per cent.

Consequently, their monthly instalments shot to Sh99,083, meaning they would end up paying Sh17,834,970 to own the house.

"Our dream family home is now a mirage, as we are stuck with a mortgage we cannot service," says Njoroge.

There are many such mortgagees who have not only been forced to abandon their dreams of owning homes, but have lost millions of shillings in mortgage deposits and already paid instalments.

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