• The change will increase uptake of mortgage loans and will bridge the housing deficit of two million units.
• Last year, only 37,000 units came to the market, against an ever increasing deficit of 250,000 units a year.
Image: BRIAN OTIENO
The Kenya Mortgage Refinancing Company is for the first time creating fixed rate mortgages.
The change will increase uptake of mortgage loans and will bridge the housing deficit of two million units.
Last year, only 37,000 units came to the market, against an ever increasing deficit of 250,000 units a year.
KMRC CEO and MD Johnstone Oltetia said when markets shift like they have shifted now where interest rates have increased from 12 per cent to 18 per cent on average earlier this year, many people default because their incomes usually have not increased in tandem.
“So we have decided to fix the mortgages so that people don’t default and have a mortgage that they can repay over a longer period of up to 25 years,” Oltetia said.
He spoke during the opening of the three-day Kenya Affordable Housing Conference 2023 in Mombasa.
Oltetia said they are now also offering mortgages at single digits, at 9.5 per cent.
KMRC has also started rolling out a risk sharing facility.
This is a partial mortgage guarantee arrangement which de-risks the end user and makes them more attractive for a financial institution to want to engage them for lending purposes.
“It also gives a protection to the financial institution. You guarantee them, especially for those who don’t have a regular income, and they can be able to take up a mortgage,” Oltetia said.
He said the government is addressing the challenges in the supply side, which is the construction of the actual houses.
National Treasury CS Njuguna Ndung’u, who was represented by director general for budget, fiscal and economic affairs in the ministry Albert Mwenda, said to address the financial constraints that limited development of affordable houses, the government established the National Housing Development Levy Fund.
He said the National Treasury and the Lands and Physical Planning ministries are working on regulations that will ensure the National Housing Development Levy collected from each working Kenyan is optimally utilised to address the housing gap in the country and spur economic growth.
“The objective here is to insulate resources that are dedicated to development of houses but also to set aside resources which the government can use to guarantee the uptake of those units once they are developed,” the CS said.
The Central Bank’s 2022 bank supervision report released in May 2023 indicated that the value of mortgage loans outstanding increased from Sh245.2 billion in 2021 to Sh261.8 billion in 2022, a 6.8 per cent increment.
The outstanding value of non-performing mortgage loans increased from Sh28.3 billion in December 2021 to Sh37.8 billion in December 2022.
This translates to a mortgage contribution to the Gross Domestic Product of 1.96 per cent in 2022, which is still low for the size of Kenya’s economy, according to the CS.
The report indicated there were 27,786 mortgage loans in the banking sector as of December 2022, a very low figure given the housing deficit in the country, which stands at a conservative figure of about two million units.
Mwenda said other constraints to affordable housing include the depreciation of the shilling against major currencies, which affects the purchasing power of individuals and companies increase the cost of raw materials sourced from external sources.
He said, however, this is a short-term problem as the government strives to stabilise the shilling.
“You are aware the Central Bank has over time raised the CBK rate sending signals of the government intention to tighten the monetary policy," Mwenda said.
“This, combined with the action that the government has taken on the fiscal side to contain debt by growing revenues and curtailing non-core expenditure, ultimately will help stabilise the shilling and bring down the cost of doing business and living in Kenya.”
“We believe that all these reforms will go a long way in unlocking the potential of the affordable housing sector."
KMRC has already refinanced home loans of close to Sh10 billion to a total of 12 primary mortgage lenders and has on-boarded 20 primary lenders, including Saccos and banks.
Saccos benefitted from the mortgage interest reliefs on mortgage loans introduced into the Finance Act 2023.
This used to be enjoyed only by banks.
“I urge Sacco members to take full advantage of this benefit,” CS Ndung’u advised.
Daniel Mhina, the associate director housing finance for Africa at Habitat for Humanity, said they are working with KMRC to ensure that all have a decent house to live in.
Their main aim is to ensure the low-income earners in Kenya have products that they can afford and eventually have affordable financing.
“Research has shown majority of Kenyans build their houses incrementally. But then we are trying to challenge our partners in the market to, say, can we have the right product to support such behaviour so that at least this majority of people who are not willing to get a mortgage still get access to financing their houses?” Mhina said.