Home loans should be made cheaper, easier

Prohibitive mortgage rates and high housing prices are to blame for low uptake.

The main highlight of The Mortgage Company’s third quarter mortgage report was a call for increased accessibility and eligibility for home loans.

While releasing the report last week, the firm’s Managing Director, Caroline Kariuki, said that to make any headway in increasing home ownership to a wider band of Kenyans, mortgage lenders must urgently make it easier for aspiring home owners to get onto the property ladder by making mortgages affordable to both salaried and business people.

To achieve more accessibility, she recommended that lenders should abolish the 10 per cent or 15 per cent deposit borrowers are required to raise before being given a home loan.

“Mortgagers need to consider full financing, to take the pressure off buyers to raise large deposits, and build housing finance products for the self-employed,” she said.

She praised Housing Finance’s recently launched Ezesha product offering 105 per cent financing, saying it increased access by removing the need for a deposit.

It is important to note that while praising such new developments, Kariuki was also alive to the fact that the cost of home loans remained prohibitive. She noted that less than one per cent of the middle class market mortgaged.

While calls for more accessibility and eligibility are noble, they are inadequate in terms of increasing mortgage uptake in the country.

Dilemma

The truth of the matter is that we do not have low mortgage uptake because people don’t want to own houses, rather, it is because mortgage rates are unnecessarily prohibitive and housing prices are unreasonably too high.

And I dare say that if these two issues are not addressed, any new measure or product we come up with, no matter how nice-sounding, won’t achieve much in terms of increasing mortgage uptake.

The starting point in addressing low mortgage uptake in the country should be dealing with high interest rates and sky-high housing prices.

It something that even Kariuki acknowledged last week when she said: “The continuing high cost of mortgages is putting a profound brake on home ownership in Kenya, and even affecting the uptake of properties for rental.”

According to The Mortgage Report, the best rate on offer in the third quarter was 13.5 per cent, whereas some lenders were charging interest rates as high as 18 per cent, putting the spread between the highest rate and the Central Bank of Kenya’s base lending rate (of 8.5 per cent) at 9.5 per cent.

Kariuki said such a margin between the base lending rate and bank rates are almost unheard of in any other mortgage market.

Innovations which cover the full-cost of a mortgage and then catering for stamp duty, valuation costs and legal fees, are good to the extent that they remove entry barriers to homeownership through mortgage.

However, they don’t make mortgages any cheaper. In fact, a borrower who goes the 105 per cent financing route, currently charged at 15.9 per cent, end up paying about 16 per cent more in monthly instalments.

The thing is, you cannot expect mortgage uptake to increase simply because you have made it easier for people to get onto the ladder. Taking a mortgage needs to be both easier and cheaper.