How higher statutory deductions have cut mortgage affordability

One of the biggest concerns you may have about a mortgage is the fear of taking long repayments as opposed to taking an unsecured loan. [iStockphoto]

Increased statutory deductions on the working class have eroded the majority of Kenyans' ability to own homes.

This is according to a report by AIS Capital Advisors, which details how mortgage amounts for salaried workers have reduced. 

The report cites increased deductions by the government to the national health and social security kitties, which have reduced incomes, affecting the amounts homeowners would previously have been able to access from lenders. 

In the background, fees and charges by county governments on public utilities to match the increased revenue needs have added a cost burden to home ownership. 

This situation has forced potential home owners to postpone purchase, with the report noting that those who will go ahead to buy a house will be forced to compromise on size, quality or location to fit their budgets.

With the contributions to the National Social Security Fund (NSSF)  going up further this month, loans amount for housing will even reduce further. 

In the last two years, workers have also seen an increase in health contributions through the Social Health Insurance Fund (SHIF) that deducts 2.75 per cent of workers' gross income. This is from Sh1,700 that used to be the maximum contribution to the defunct National Health Insurance Fund (NHIF). 

Kenyan workers are also contributing 1.5 per cent to the Affordable Housing Levy. This is meant to support the government's agenda of building two million housing units. 

These taxes are amidst the increased cost of living that Kenyans are enduring, which is dimming the possibility of them owning their dream homes. 

The report in discussion, sanctioned by the Kenya Mortgage Refinance Company (KMRC), the Sacco Societies Regulatory Authority (Sasra) and the Financial Sector Deepening (FSD) Kenya, notes that the situation has also affected homeowners currently servicing mortgages. 

From the breakdown provided in the report titled, Leveraging Sacco Data and Research to Strengthen the Financing of the Affordable Housing Value Chain by the Sacco Sector, an individual earning Sh200,000 was paying Sh55,457 monthly in April 2025 to service their mortgage, which is less than Sh58,413 that they were paying in April 2022. 

The Sh55,457 monthly service was a negligible improvement from the Sh55,222 as of November 2024.

This improvement of Sh235 is a result of the National Treasury decision to include the new taxes, such as the housing levy, as allowable through the Tax Laws (Amendment) Act, 2024. 

For this worker, their take-home pay was Sh87,613 in April 2022, which dropped to Sh82,833 by November 2024 when the new taxes were introduced, before it improved slightly to Sh83,186. 

"The housing levy deduction is reducing mortgage affordability for salaried borrowers," the report says. 

The participants noted that the mandatory 1.5 per cent housing levy, deducted monthly from gross pay, reduces their net income and consequently the mortgage amount individuals can qualify for, according to the report.

"This has made it harder for some to secure sufficient financing for their desired homes," the report says. "Members suggested exemptions for existing homeowners and those already servicing home loans, arguing that the levy adds an unnecessary burden."

It adds: "Others proposed that KMRC tap into the housing fund to enable access to cheaper financing for home ownership."

The report says rising statutory deductions and stagnant incomes are reducing borrowers' capacity, thereby limiting the loan amounts that Sacco members can qualify for, citing increases in statutory deductions, including the housing levy, NSSF contributions, and deductions under the SHIF, saying they have significantly eroded net incomes for salaried workers. 

"While the December 2024 changes allowing pre-tax deductions for AHL and SHIF provided some relief, the overall effect has been a reduced loan qualification capacity," reads the November 2025 report.

The report says that, for instance, a Sacco member earning a gross monthly salary of Sh200,000 now qualifies for a mortgage of Sh6.35 million — close to Sh340,000 lower than the Sh6.69 million they could access in April 2022 — assuming a 60 per cent gross income retention for living expenses.

"This trend forces members to compromise on home size, quality, or delay homeownership entirely as households will most likely forgo lower-priority needs such as buying land or building a home in favour of higher-priority needs such as food and education when disposable income declines," the report illustrates. 

The unpredictability of changes in deductions, the report says, may lead to increased non-performing loans (NPLs) as fully committed payslips breach the one-third rule amidst a high cost of living.

Apart from the increases instituted by the State through pay slip deduction, home ownership has been made more difficult by counties which are similarly increasing charges, which the report says is reducing mortgage uptake. 

"Unpredictable increases in government fees and charges are significantly undermining mortgage affordability. Public sector charges related to property ownership — such as land registration, consent fees, valuation fees, and stamp duty — have seen multiple increments over recent years," the report says. 

The report says that these fragmented but cumulative increases directly impact the cost of property acquisition, making mortgages less affordable.

"For example, in April 2024, stamp duty increased to four per cent from two per cent in select counties upgraded to municipalities e.g Kiambu, Kajiado, Machakos, Kilifi, Narok, Ngong, Naivasha, Malindi and others, and in May 2024, the official land search fee doubled to Sh1,000 and the Land Control Board’s consent cost tripled to Sh3,000," the report says.