A survey by the Kenya National Bureau of Statistics (KNBS) tracks the financing options in the market, which Kenyans who wish to build or buy a home have.
Commercial Banks
To own a house through bank financing, you will most likely have to take up their mortgage program. According to the KNBS data, 38.9% of commercial banks in Kenya have a savings product designed for mortgages. This is higher compared to Microfinance Banks and SACCOs, of which only 15.4% and 6.3% respectively have mortgage programs. Cumulatively, however, saving products from financial institutions for mortgages represented only 10%.
When it came to loans for housing initiatives, banks primarily financed mortgages at 86.1%. However, loans from banks were also prominent in financing construction for owner occupation and buying land, both at 69.4%.
“The survey findings indicate that mortgages offered by financiers provide a significant share of credit advanced for the purposes of housing development at 39.9 per cent with different financial institutions offering different terms on this type of credit facility,” the survey reveals.
On calculating the fees surcharged on mortgage loan principal, banks had the highest valuation fees, mortgage insurance, and building insurance at 2.2%, 2.3%, and 2.6% respectively. However, stamp duty was higher at 3% despite being lower than mortgage loans from other financiers.
The average interest rate charged on mortgage by banks was at 14%, higher than the overall average of 13%. However, compared to other financiers, banks were more willing to provide mortgage products to special interest groups like women, PLWDs, and the youth.
Microfinance Banks & SACCOs
On tailored saving products for housing, 53.8% in Microfinance Banks was geared towards incremental building while 60.8% in SACCOs was dedicated to purchasing land.
On loan products for housing, 46.2% in Microfinance Banks and 60.8% in SACCOs were used in purchasing land. On the loan principal for mortgages, Microfinance Banks (MFBs) had the highest stamp duty fees at 3.3% and legal fees at 2.5%.
Similar to commercial banks, MFBs mortgage loans had an average interest rate of 14%. For SACCOs, the figure was lower at 12%. However, SACCOs had the lowest affinity for financing housing initiatives by special interest groups.
Only 9.9% of real estate firms surveyed in a second KNBS survey provide housing financing arrangements to buyers and renters of their property, which leaves few options.
Default and repayment
The interest rates of mortgages in Kenya are quite high, a factor that could prevent interested home owners from getting them. Moreover, the fluctuating rates affect predictability leading to significant defaults.
Lenders are also wary of providing mortgages to many Kenyans, a majority of whom are in the informal sector and have no desirable collateral.
Microfinance Banks had the highest rate for Non-Performing housing loans at 24%, followed by banks at 15.3%, and SACCOs at 3.9%. The total average of NPLs was 12.7%.
However, different institutions defined Non-Performing Loans in various ways based on the number of days passed since the due date. Over 40% of financiers regard a loan as non-performing when it is ninety days past due date – with 88.9% of commercial banks considering this period as the standard for NPLs.
To coerce repayment, more than 92% of MFBs, 85.3% of commercial banks, and 70.96% of SACCOs resorted to enacting penalties on late repayments. Other methods like lower interest rates on subsequent loans and interest rebates remain diminutive.
“Loan rescheduling was used by 80.3 per cent of financial institutions. Most Commercial banks and MFBs use property auction and sale by private treaty as a way of recovering non-performing loan,” the survey noted.
Most of the financing outlets revealed that the biggest barrier to lending for housing initiatives was lack of long-term capital. Microfinance Banks were especially inhibited in lending by lengthy legal processes to recover NPLs and tedious registration processes for land and mortgages.
Furthermore, regulators issue funding cap directives and stern procedures based on the organization’s risk preventing most of the finance institutions from pumping more money into the housing sector.