By Jevans Nyabiage
Nairobi,Kenya:Mortgage: As at April 4 Barclays Bank offered the best interest rate for mortgages followed by Co-operative Bank, Standard Chartered and Kenya Commercial Bank and S&L
Access to mortgage remains a big headache for many Kenyans due to high rates charged. The high cost makes mortgages unaffordable.
According to a report by Hass Property Index in association with The Mortgage Company (TMC) covering the first quarter of this year, high interest rates make mortgage payments twice as expensive as renting the same properties.
The report put Co-operative Bank at second place as the cheapest mainstream mortgage lender, after four point cut to 15.75 per cent, Equity Bank increased rates in the first quarter, to 22 per cent. Bank of Africa offered the cheapest foreign-denominated mortgages, at 9 per cent. Mortgage financed houses are making losses at current rates, even where they are rented out.
Higher than rent
The break-even rate to create mortgage payments on a par with rentals is 4.7 per cent and without urgent financial intervention, housing shortages are set to grow far worse, and home ownership will remain “a pipe dream” for most Kenyans.
The report shows that as at April 4, 2013 Barclays Bank offered the best Interest rate for mortgages at 15.50 per cent in Kenya, Co-operative Bank (15.75 per cent), Standard Chartered Bank (15.90 per cent) and KCB S&L (16 per cent). Others are Chase Bank (22 per cent), Equity Bank (20 per cent), NIC (19 per cent), Diamond Trust (19 per cent), Consolidated Bank (19 per cent), National Bank (18 per cent), HFCK (18 per cent), and Family Bank (17.5 per cent).
The Mortgage Company warns the continued high levels of commercial interest rates were stifling the local mortgage market, and creating an obstacle to widespread home ownership, that now urgently needs to be addressed. An analysis by TMC comparing rents and mortgage payments on identical properties revealed mortgage payments now running at typically twice prevailing rents, deterring landlords from buying mortgage-financed buy-to-let properties, and leaving developers with unsold properties. Only one bank, Co-operative Bank, cut its rates significantly in the first quarter of the year, emerging as the new market leader after cutting its rates by 4 per cent, from a range of 19.25 to 20.25 per cent down to 15.75 to 16.25 per cent. This now represents the second cheapest mainstream mortgage, after Barclays, which was maintained at 15.5 per cent across the quarter, and Standard Chartered at 15.9 per cent.
However, majority of the country’s banks held rates at between 17 and 19 per cent, with the highest rate being asked by Chase Bank, at 22 per cent. This saw the average mortgage rate for the quarter maintained at just marginally below 18 per cent. Equity Bank, in a unique move across the industry, put its mortgage rate up by 2 point, from 18 per cent to 20 per cent. The resilience of such high mortgage rates, at a time of flat rental yields (at 6.22 per cent) and only moderate sales price growth (at 9.98 per cent), saw mortgage-financed properties, even those earning rental incomes, record a sixth consecutive quarter as a loss-making asset.
Above normal
“Rates are running at far higher levels than the norm,” said Ms Carol Kariuki, Managing director, The Mortgage Company. “With the Central Bank Rate stabilising, we would normally expect a 4 per cent spread, meaning rates of 13 to 14 per cent, and yet the average is still next to 18 per cent.”
“This extra has rendered houses bought with mortgages a loss making asset, which is a grave impact, and has to call into question the purpose of the banks in holding to such high returns.” “Unless the banks now return to more normal returns, the consequences for the mainstream mortgage industry will be extremely serious, as buyers seek alternative financing routes, and the mortgage industry renders itself stillborn.”
Among the alternative financing routes, has been mortgages denominated in dollars, Euros or pounds sterling. In this market, Bank of Africa and Chase Bank led the field with the cheapest offerings in the first quarter, at a rate of 9 per cent.
“However, mortgage takers should exercise great caution in committing to foreign currency repayments unless the country enjoys the kind of improvement in its balance of payments that will stop the shilling from deteriorating. The outlook for exchange rates carries its own, additional costs,” said Ms Kariuki. Despite the banks reacting sharply to the upward changes in the Central Bank Rate during 2011, they have been very slow to react to the downward changes in the rates during 2012.
Making big spreads
The Monetary Policy committee last week cut the Central Bank Rate by 100 bps to 8.5 per cent, thus resuming its easing cycle following the elections. With this, mortgage rates should be at 13-14 per cent. However the average bank rates remain much higher at a whopping 18 per cent.
In the USA, mortgage rates range around 3.5 per cent. A two-bed Apartment in Syokimau of Sh3.9 million taken for a tenor of 20 years at the best commercial rate in Kenya of 15.5 per cent will cost the home owner approximately Sh42,357 while the same home at a equivalent US rate of 3.5 per cent would cost the home owner Sh18,095 per month to mortgage. One can imagine the impact of this shift in affordability.
Affordable home ownership is still a pipe dream for most Kenyans. The high land prices and high cost of infrastructure coupled with the developers need to make a profit keep most homes out of reach for most Kenyans.
