Mortgage is better than rent

By David Maveke

For a majority of Kenyans, buying a home is the single largest purchase and the biggest financial responsibility they undertake.

For many, renting is the first step to home ownership and for others it has become a long-term lifestyle. Renting exposes the renter to fluctuations in prices. This will increase your housing costs if you want to stay in the same rental unit, which is often the case.

If you cannot afford the cost, you will have the expense and inconvenience of moving to a more affordable unit, which in most cases is a downgrade from your current lifestyle.

Financial cushion

A recent report by the Central Bank of Kenya and the World Bank shows a majority of Kenyans are renting as opposed to taking a mortgage. While certain factors such as income may genuinely be contributing to this trend, a sizeable number of Kenyans who should be on mortgage are opting to rent.

Renting on a long-term basis can be more expensive than a monthly mortgage loan payment. When you rent, none of your payments go towards building up savings and you cannot benefit from any improvements in the housing market that add to the value of the property.

For those who rent a house in today’s environment of rising prices, he or she will never benefit from the appreciation in the property value. Moreover, even if the value of the property does not increase over time, the mortgage balance decreases and equity accumulates.

If you own a home over the long haul it’s almost certain you will build up equity in the property. In fact, it can be one of the best ways to give yourself a solid financial cushion in life. Unlike a mortgage payment, money paid for rent is not tax deductible. Currently one enjoys a tax relief of up to Sh150,000 per annum on their mortgage.

Investors also see property as a way to fight inflation. With inflation creeping up, any delay in buying a property today will result in paying more later. Take the example of property in Nairobi’s Buru Buru Estate. Fifteen years ago, the average cost of a house in the estate was less than Sh500,000. Today the residential property in the area will cost you not less than Sh6 or 7 million, a growth of more than 1,000 per cent over the period.

If you own a home that is appreciating or maintaining value, it means you will enjoy growth in your equity. This can be used to secure loans in future and to provide security in retirement. You also have the option of converting your house into a rental property.

Lease conditions

Today’s favourable exit clauses also enable mortgagees to exit a mortgage without losing their initial deposit or accrued equity in the property. Owning a house gives one a sense of security, stability and satisfaction. There is no need to be concerned about lease conditions, rental price fluctuations and landlord issues, all which are applicable if you choose to rent instead.

If you own a home, your mortgage repayments act as a form of compulsory savings. Simply put, when you work towards paying off your mortgage, you free up a large portion of your income that was previously used for rental needs.

The writer is the Head of Mortgage at Housing Finance