Why are Kenyans avoiding mortgages?

Seven years ago, Home & Away carried an interview with Carol Kariuki, founder of The Mortgage Company, then described as the “first mortgage brokerage firm in East Africa with a passion to expand home ownership.”

In the interview she said: “To many Kenyans, a mortgage is like a caged animal to be watched from a safe distance. Many have the mistaken notion that the mortgage sector is for a privileged few.”

She was right. In 2012, the mortgage portfolio statistics were nothing to write home about. The country had 19,177 mortgage loans and Kariuki had the dream of pushing this figure up to a million in five years by creating a bridge between prospective homeowners and lenders.

Fast forward to 2019 and her noble endeavour is no more. The ‘caged animal’ seems to have hounded Kariuki out of the mortgage field and she has since found solace in commercial bamboo farming where she hopes to “create wealth, one tree at a time.”

Despite a spike in the country’s mortgage loan book, it is still nothing to write home about.

According to Central Bank of Kenya’s Bank Supervision Annual Report 2017, the country had 26,187 mortgage loans in the market as of December that year, or 2.7 per cent of Gross Domestic Product.

This was an 8.8 per cent increase from the previous year’s 24,059 mortgage loan accounts.

The CBK survey is conducted annually and provides an update on the size of mortgage portfolio, loan and risk characteristics and the obstacles to mortgage market development.

It also suggests possible intervention measures to support the mortgage market. The bank is yet to release the 2018 report.

And while the outstanding mortgage loan assets increased from Sh219.9 billion in December 2016 to Sh223.2 billion in December 2017, only a few financial institutions found comfort in offering such loans in high volumes.

“About 75.5 per cent of lending to the mortgage market was by six institutions that is, one medium sized bank and five banks from the large banks peer group as compared to 77 per cent lending by six institutions in 2016,” says the report.

The issue of mortgages has been a dicey one in Kenya with a number of risk factors cited as impediments to home ownership.

Interestingly, these factors have hardly changed over the years despite pieces of legislation meant to tame them including the 2016 interest rate capping law.

Questionable collateral

There is the issue of collateral value and whether it is legitimate and free of encumbrances. Some banks have in the past issued loans against worthless pieces of paper.

Then there is ability (or inability) and willingness by the borrower to repay, or what the industry terms as debt service ratio usually influenced by the borrower’s level and sustainability of income.

“Banks are there to facilitate business including home ownership through lending. However, short term deposits in Kenya make long term lending unattractive to banks. Then you have inefficiencies in property registration where such registration can take up to six months,” says George Laboso, head of mortgage at Barclays Bank.

Between March and September this year, the bank ran a campaign to shore up its mortgage loan book by offering interests rates between 11.5 per cent and 11.9 per cent.

The campaign, Laboso says, saw the mortgage portfolio double, with an average bank mortgage loan size at Sh9 million.

While many Kenyans believe that getting a mortgage is a sure way to home ownership, some financial experts and developers say this is just but one route to this goal.

Jared Osoro, director for research and policy at Kenya Bankers Association says there is a misconception that a mortgage loan is the principal roadmap towards home ownership, terming the loan as just another tool in the hands of lenders.

“We should stop demonising banks for the low mortgage loans in the market. A mortgage is just a loan where real property is used as collateral. It can be one way to home ownership but you can also mortgage your property to expand your business or educate your children,” he says.

No trust in banks

Ravi Kohli, founder and managing director of Karibu Homes says Kenyans, especially those in urban centres, have an insatiable appetite to buy a house but do not trust banks for the perceived high interest rates.

He says only 30 per cent of those who invest in Karibu Homes use a mortgage facility to acquire a home.

“Half of those who buy through mortgage either work in the banks or with the government since they can get subsidised mortgages. The rest feel the interest rates are too volatile to service. Imagine the rates jumping form say 13 per cent to 18 per cent, your repayments go up while your salary remains stagnant,” he says. His take? “With more liquidity, Saccos would be a better route to home ownership as they are not driven by mere profits.”

With mortgage financing avenues getting foggier by the day, Kenyans hope that Kenya Mortgage Refinancing Company (KMRC) launched in May 2019 will provide some respite where others have failed.

KMRC is a private sector driven company that will provide secure, long-term funding to the mortgage lenders with the hope of increasing affordable mortgage loans to Kenyans.

Only time will tell whether will KMRC be the silver bullet that will provide home ownership to the masses.

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