The mortgage system in Kenya boasts of affording many families their own homes. However, with most Kenyans current disposable income, it is clear that not many can afford a decent house through this system, writes ALLAN OLINGO
When The Mortgage Company in partnership with HassConsult announced the results of the second quarter mortgage report a fortnight ago, it revealed a trend of falling interest rates for mortgages, despite the long running peak in the base rate of 18 per cent.
“The mortgage rates have been trending downwards, as the industry becomes more creative and more focused in making home ownership products accessible,” said Caroline Kariuki, Managing Director of The Mortgage Company.
Financial institutions have now come up with new products that are meant to entice the market. Standard Chartered Bank has a mortgage takeover offer at 16.9 per cent, non-bank mortgages at 14 per cent, and CFC Stanbic on the other hand, has a new fixed rate offer at 18.5 per cent. Other new players like the micro-finance institutions have also made debuts into the mortgage bandwagon with Rafiki DTM having launched incremental housing mortgages of between Sh300,000 and Sh3million that targets the middle to lower end of the market.
As much as this is good news, the mortgage rates remains high and out of reach to most Kenyans. With various gross salaries and generic pay slips, below are key scenarios that many would-be homeowners fall into and the kind of properties that their current earnings can earn them through the mortgage system or basic options that they can explore.
Scenario One
Moses Kivuva is an employee of a non-governmental group called The Movement.
His gross income is Sh100,000. After he pays his deductions that include the Paye, a loan with a co-operative organisation and his monthly shares, his net salary come to Sh65,747.60.
Moses lives in a one bed-roomed house in Lang’ata, which he pays Sh20, 000 as his rent and his other utilities totals Sh15,000. With this his disposable income becomes Sh30, 747.60.
Assuming we split his disposable income by half, he will then be comfortable servicing a mortgage with monthly premiums of Sh15,000.
Now it will be a tall order for him to have a mortgage with such kind or repayment system but there are other options he could consider.
Viable option: Moses can take up a mortgage savings plan in which he will save 15 per cent of his salary for a period of 60 months in order to raise a deposit for Sh6 million house say in Nyayo Embakasi or Kitengela.
At the end of 60 months, he will have Sh1,051,783 and on the current interest rates, and assuming his salary has remained constant, this option is also not attractive because the minimum monthly repayment premiums for this house will stand at Sh31,000, an amount he obviously cannot afford.
Let’s consider option two. Given that Moses belongs to a Sacco, after repaying his Sh250,000 loan, he can borrow three times his savings of 210,000 and get Sh630,000 which then he can purchase land and use it as a security to build his own home or even top up on his Sacco borrowing to start building.
Assuming that Moses Kivuva is married to Faith Kamwaro whose gross pay is Sh75,000. After all the deductions, and assuming she has no loan her net pay is Sh55,547. This makes the family’s disposable income to be Sh85,795. The family then can approach a mortgage provider and discuss the prospect of buying a home worth Sh5.8 million at Nyayo Embakasi or a standalone unit in Kitengela, Mombasa road or even Ongata Rongai, with a comfortable joint repayment plan that spans for 15 years.
If they consider saving for the mortgage deposit. It will take them 60 months on a 20 per cent savings plan to raise Sh1,160,000. This makes the property value financed by the mortgage company to be Sh4,640,000. Then the monthly?payment will be Sh81,492.16 ? and this is just inclusive of the principal and interest only. It is exclusive of insurance and other additional costs.
Viable option: There is the option of both of them saving 15 per cent of their salaries in order to raise deposit for their 5.8 million shilling for their home but this will take five years to achieve. The other option is the Sacco option, which is the most attractive for the two. It is definitely the easiest option for them to own a home.
Scenario Three
Annete Owino is a parastatal employee and her gross pay is Sh50,000. After monthly deductions, her net pay is Sh36,000. When she factors in her expenses that include a Sh12,000 rent for her two bed-roomed apartment in Umoja and other utilities like electricity, commuting, food, water, her disposable income is Sh11,000.
In reality, Annete does not qualify for a mortgage even though she can save 15 per cent of her salary for 60 months to raise deposit for a small bed sitter on Mombasa road or a small house in Ongata Rongai worth Sh2.6 million. But how will she service a mortgage even after raising the deposit?
Having a mortgage will be a pipe dream even after raising the deposit because with the current average mortgage rate of 20 per cent and a repayment period of approximately 15 years, Annete will be required to pay a sum of Sh31,000 as monthly premiums, which ironically, is almost her net income.
Viable option: From her payslip Annete has been contributing Sh3,000 to the Sacco. The 60 months that it will take her to save for the deposit to access mortgage, Annete would have accumulated a sum of Sh180,000, where she can get a loan of Sh540,000 at a flat rate of 12 per cent per annum from her Sacco. She can use this amount to purchase land where she can afford and build at her own convenience.
Peter Wanjala operates a jua kali business and on a good month he can take home Sh25, 000. After paying his tax and contributions to NHIF and NSSF, Wanjala has a sum of Sh22, 480 to himself.
Assuming Wanjala stays in Shauri Moyo where he pays a rent of Sh4,500 and his utilities sum up to Sh10,500, this leaves him with Sh11,950. If Wanjala decides to save 15 per cent of his salary, he will save a sum of Sh17,92.50 per month. At the end of the year, he will have Sh21,510. If he saves for 60 months, he will have Sh107,820, which within the mortgage systems is the ten per cent deposit required to make a purchase for a plot worth Sh1 million.
But this option is not workable because Wanjala’s income cannot fit into any of the mortgage providers’ repayment structure. The only option he has is to approach a micro-finance institution and get a loan to buy land against his assets… then worry about building a house at a later date!
