Fixed rates are better for home loans market


During a groundbreaking ceremony for a new housing project in Mlolongo recently, Land, Housing and Urban Development Cabinet Secretary Charity Ngilu lamented that high interest rates were a major hindrance to home ownership and promised to talk to mortgage providers to lower the lending rates.

With a booming real estate industry in Kenya, more people are seeking to own homes and properties as long-term investments. According to the Africa Housing Finance Yearbook 2013, mortgage uptake in Kenya increased by 35 per cent from 16,029 in 2011 to 20,000 in 2012.


The report, published annually by South Africa-based Centre for Affordable Housing Finance, indicated that most banks offered variable mortgage rates as opposed to fixed interest rate.

About 85.6 per cent of the mortgages given in 2012 were variable. In 2011, variable rate mortgages accounted for 90 per cent of all home loans offered.

The Central Bank of Kenya, which sets the base lending rates, suggested that the predominance of variable rate lending is constraining the growth of the country’s mortgage market. Financial institutions, which are driven by profits other than supplementing the government, will nevertheless be skeptical of Ngilu’s plan.

Variable Rates

Even though fixed interest rates seem to be favoured by borrowers and the industry regulator, financiers seem to be keen on continuing with variable rates due to the unpredictability of the country’s economic environment.

Since interest rates shot up in 2011 due to inflation, financial institutions have been reluctant to reduce their rates closer to the 8.5 per cent that was set by the CBK early this year. The holding out can also be attributed to what the institution perceive as a gamble on lending with a fixed interest rate.

To many middle and low-income earners who can form chamas to help them buy properties, fixed lending rate will insulate tålation.

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