The biggest blockage to mortgage take up in the Kenyan economy is the high interest rates from the main lenders. At the current rates, analysts predict, half Kenya’s urban population cannot afford loan repayments for a house that is priced at Sh700 000.Unveiling the Mortgage Report for the first quarter of 2014 late last month in Nairobi, Hass Consult and the MortgageCompany painted a grim picture, laying the blame squarely at the banks’ doorsteps.
“The main mortgage market players have all maintained mortgage rates in the 15 to 18 per cent range, with the most rates remaining unchanged in 2014,” said Caroline Kariuki, managing director, The Mortgage Company.
Of the top banks, Standard chartered remains the lowest cost lender at the near punitive 13.9 per cent. This figure has remained unchanged in the past one year. Kenya Commercial Bank (KCB) has unveiled a promotional offering rate of 14.5 per cent until June 2014 with Commercial Bank of Africa cutting hers from 17 to 15 percent.
Clearly, commercial banks have substantially maintained their unusually high borrowing rates despite the growing impact on the housing market, on the Kenyan economy at large and the outcry coming from as far high in government ranks as the Deputy President.
From a population of about 44 million and still growing, mortgage uptake remains at only 20, 000, yet banks have the tenacity to charge rates headed into 20 per cent. Consolidated Bank offers the most expensive mortgages at 19 per cent and Chase Bank is the only one to negotiate counter rates with individual clients in a range between 16.5 per cent and 19 percent.
“With the mainstream lenders hanging on with such tenacity to such high margins on their lending, the delayed take –off in Kenya’s mortgage market is distorting the country’s housing range, discouraging private developers, and locking out all but the elite from home ownership,” Ms Kariuki said.
The effects of these punitive interest rates by lenders are clear in the property market. According to Hass Consult, even though property sales volumes picked up from January and February and markedly strong in March, the most intense activity was at the top of the market, with the cheapest properties still taking the longest to sell.
“The market continues to be handicapped by lack of access to mortgages for mid-level and lower level buyers,” said Ms SakinaHassanali, head of marketing Hass Consult.
Nationwide, Ms Hassaneli added, the demand for housing is strongest at the lowest end of the market but the financing options are almost non-existent. This, she said, renders the private sector property market a high-end affair.
The bottleneck in housing finance, the report shows, has steadily pushedrents up. Professional Kenyans have continued staying in rented accommodation with the rental option of choice being semi-detached town houses.
Asking rents for semi-detached houses rose a further 2.3 per cent in the period under study compared with the prices from October to December 2013.The rent rises for detached houses were more subdued in 2013 at 8.7 per cent while for apartments, rents rose by 4.4 per cent
“With the finance blockage also impacting landlords in acquiring new properties, and the rental yields on properties still at less than mortgage interest rates, the race is now on to get rents up to a level where landlords can cover finance costs and not end up making loses,” the Hass Consult head of marketing said
Ms Hassanalialso warned of further asking price rises in 2014 especially with cash buyers continuing to drive the market. This is based on the reduced flow of new building caused by the high level of finance costs for developers.
Protests on high interest rates have largely fallen on deaf ears with banks not promising to budge an inch. Not even a recent passionate plea from the Deputy President, calling for an enabling environment to allow Kenya achieve one million mortgages, up from today’s 20, 000has made bank managers blink.
Analysts are now toying with the idea of legislation to cap bank interest rates.Data complied for the mortgage report shows that just one percent of urban Kenyans can currently afford the mortgage repayments for a house priced at Sh5.7 million and a further 4 per cent for a house priced at Sh3.9 million.
“In the absence of any more constructive approach from commercial lender,” The Mortgage Company managing director said,“mortgage take-up now depends on government intervention, either through supporting mortgage backed securities to stimulate the secondary mortgage market, or through the creation of housing funds and even mortgage subsidies,”