Shrinking incomes lock more Kenyans out of mortgages

Balancing mortgage rate.

More Kenyans are being locked out of homeownership as their incomes shrink despite data from banks showing an increase in mortgage loans issued last year.

Unlike in 2021 when the impact of the Covid-19 pandemic was identified as the biggest obstacle to the uptake of residential mortgages in the country, shrinking income levels are now the leading cause of stagnation on this front, according to new data by the Central Bank of Kenya (CBK).

Non-performing loans 

This seems to have affected even those repaying their mortgages, with the CBK Bank Supervision Annual Report 2022 showing that non-performing loans (NPLs) increased by almost Sh10 billion in the last year.

Similarly, the average size of mortgage loans issued in the year reduced by Sh200,000 even as the repayment period was slashed by 24 months.

The report shows the outstanding value of non-performing mortgage loans increased from Sh28.3 billion in December 2021, to Sh37.8 billion in December 2022, a difference of Sh9.5 billion.

However, the ratio of non-performing mortgage loans to gross mortgage loans was 11.4 per cent in December 2022 compared to 12.0 per cent in December 2021.

“The ratios were below the industry gross NPLs to gross loans ratio of 13.8 per cent in December 2022 and 14.5 per cent in December 2021,” the report says.

Rising interest rates 

The number of mortgages issued within the period increased by 1,063 to 27,786.

“This was mainly due to new mortgage loans granted in the year,” the report explains.

It says the average mortgage loan size decreased from Sh9.2 million in 2021 to sh9.0 million last year.

“This was mainly due to lower values of mortgage loans advanced in the year,” says the CBK report.

The report indicates that the average interest rate charged on mortgages last year was 12.3 per cent.

This is within the range of 8.2 per cent and 17.0 per cent compared to 7.1 per cent to 15 per cent in 2021. The average interest rate in 2022 was 11.3 per cent.

“The increase in average rates was consistent with the increase in interest rates in the year,” the report says.

Loan to value (maximum loan as a percentage of property value) for both years was pegged below 90 per cent of the property value by the majority of banks.

Average loan maturity

The CBK report notes that the average loan maturity was 10.9 years with a minimum of 60 months and a maximum of 18 years during the review period.

This was a drop from an average of 12 years reported in 2021, with a minimum of 160 months and a maximum of 20 years.

“This is an indication that banks decreased the period of mortgage facilities in 2022,” the report says.

A majority of those polled (31 respondents) listed low level of income as the biggest obstacle to homeownership last year compared to 32 respondents who cited the impact of the Covid-19 pandemic as the reason for the same.

Some 23 respondents cited the high cost of properties, which is directly linked to the cost of construction as detailed by another report by the Kenya National Bureau of Statistics (KNBS).

Limited access to affordable long-term finance, also linked to banks slashing the maximum loan maturity period from 20 years in 2021 to 18 years in 2022, garnered 18 responses.

“Based on the above ranking of mortgage market constraints, banks identified low level of income, high cost of property purchase and limited access to affordable long-term finance as the major impediments to the growth of their mortgage portfolios,” the report further explains.

Financial institutions listed several risks for households applying for mortgages, where the age of the borrower, ease of property disposal in the event of default, location of the property, credit reference bureau history and collateral as some of the aspects they closely monitor before such a facility is approved.

For mortgage loans advanced to businesses, the banks look into the type of enterprise, past loan repayment records, profitability, experience of the proprietor in their field, duration of operation and future projection.


Among the suggestions for making homeownership affordable through residential mortgages include the finalisation of the digitalisation of the land registry, availability of low-cost housing options, provision of affordable long-term funds through initiatives such as Kenya Mortgage Refinance Company(KMRC) and streamlining the regulatory and legal process governing the mortgage sector.

This is for purposes of transparency, efficiency, and certainty.

Others are the provision of basic infrastructure for developers by counties and the National Government, establishing a one-stop shop for all statutory approvals, educating Kenyans on mortgage products and training the youth on home ownership.

Bankers also want a home ownership saving plan.

This year, bankers expect the uptake of mortgages to increase as the economy recovers from the effects of the Covid-19 pandemic.

The report also urges the government to support low-cost housing through discounted long-term financing from institutions like KMRC and partnerships with developers.

“The mortgage market is also expected to remain stable,” the report says.

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