Home buyers opt for flexible modes of payment

Harold Ayodo

It is everyone's dream to own a home and completely forget the every-increasing rent, especially in Nairobi.

Unfortunately, the skyrocketing interest rates charged by banks and mortgage firms may make owning a home a pipe dream. The latest Hass Property Index report indicates that the cost of property and rents, especially in the middle-income areas, has gone up significantly.

Unprecedented volatility

According to the quarterly survey, areas like South B, South C, Nairobi West and Buru Buru have recorded a 20 per cent rise in rents in the last one-year while property prices rose by between eight to nine per cent. This means prices in such areas are three times higher than what they were eleven years ago.

Back to lending institutions where interest rates have increased from 14.5 per cent to 25 per cent. This is after Central Bank of Kenya raised its lending rates from six per cent to 18 per cent.

As interest rates move up unpredictably and exchange rate face unprecedented volatility, prospective homeowners are giving a wide berth to lending institutions. Some of them are now entering agreements with sellers on other flexible modes of payment.

Some property lawyers have reported the increase of such agreements that allow flexibility in installments. Some of the agreements have a clause that allows buyers to occupy the houses even before completion of payment.

Those opting for such agreements argue that it is easier to pay for a house out of your pocket than borrow from a bank or mortgage firm.

The major advantage with such agreements is that there is no interest charged on the agreed sale price, unlike mortgages where interest rates are pegged on inflation.

Unpredictable interest rates

Take the case of Patrick Kamau and his wife Pauline who sent an email in reaction to a Home & Away feature on the difficult times mortgagers are facing.

"We were to apply for a mortgage this year to buy a house in Embakasi, but thought twice because of the increasing repayment rates," said Pauline.

According to her, having a loan whose repayment period is not fixed is like committing economic suicide.

"It does not add up to take a loan of Sh5 million to buy a house then pay installments of over 90,000 a month for over 15 years," Pauline argues.

Instead, the couple looked for a house and entered a written agreement with the owner where they will be paying Sh50,000 a month until they complete the Sh5 million.

She says it is a better deal because instead of paying rent, which may be slightly less than Sh50,000, they can pay that and eventually own the house.

According to the couple, they have killed two birds with one stone: Not paying rent and avoiding the nightmare of unpredictable interest rates.

The writer is an advocate of the High Court of Kenya.