Why are Kenyans avoiding mortgages?
SEE ALSO :Turning the housing dream into a realityAnd 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
SEE ALSO :Deputy governor probedThere 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.
SEE ALSO :Money rules you should breakWhile 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. [email protected]
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