• The Mortgage Market in Kenya: An Overview

• The Mortgage Market in Kenya: Some Vital Statistics

• The Central Bank of Kenya’s Bank Supervision Report

The Mortgage Market in Kenya: An Overview

The mortgage market in Kenya is dominated by banks which have been the traditional lender of choice from pre-colonial times. Over the years, new players have emerged. Besides banks, there are now Microfinance Institutions, MFIs and Savings and Credit Cooperative Organizations (SACCOs) competing as lenders in the market.

To get a fairer understanding of the mortgage market in Kenya, it is important to note that the Central Bank of Kenya, CBK regulates both banks and microfinance institutions while SACCOs are regulated by the SACCO Societies Regulatory Authority, SASRA.

Lenders are placed under statutory compliance to report to their respective regulators and to provide information about their dealings. The Central Bank of Kenya’s Bank Supervision Department publishes a report annually of the structure and performance of Kenya’s banking sector, including commercial banks, microfinance banks, and other financial institutions.

The report also examines macroeconomic conditions, supervisory developments, and regional/international initiatives impacting the financial sector. Key performance indicators, such as asset growth, deposit increases, and profitability, are presented. Finally, the report addresses ongoing regulatory changes, particularly concerning anti-money laundering and combating the financing of terrorism.

The Mortgage Market in Kenya: Some Vital Statistics

• The average mortgage loan size in Kenya in 2023 was 9.4 million remaining unchanged from from the average in 2022.
• The average interest rate charged on mortgages in 2023 was 14.3%, ranging from 8.7% to 18.6%. This was an increase from the 2022 average of 12.3 %, which had a range of 8.2 % to 17.0%.
• The increase in average interest rates in 2023 was in line with the general increase in interest rates over the year. The average loan maturity for a mortgage in 2023 was 11.7 years, with the shortest loan being 5 years and the longest 18 years. This is longer than the average mortgage loan maturity in 2022, which was 10.9 years with a minimum of 5 years and a maximum of 20 years.
• The nine top mortgage lenders in Kenya in 2023 and their respective mortgage portfolios are:

• The report notes that 89.5 per cent of mortgage lending in Kenya was done by these 9 institutions only.

• The Central Bank of Kenya (CBK) conducted a Residential Mortgage Market Survey in 2023 to understand the state of the mortgage market. In the survey, lenders identified the following as the main obstacles to mortgage market development in Kenya:

The Central Bank of Kenya’s Bank Supervision Report

The Central Bank of Kenya’s Bank Supervision Report provides the most comprehensive data available on the mortgage market even if it excludes information related to SACCOs. SASRA, the regulator for SACCOs doesn’t publish similar data. Therefore, even though it has its shortcomings, it can be deemed to be the clearest information source on the Mortgage market in Kenya.

While the report isn’t specifically about the Mortgage Market in Kenya, it provides the most comprehensive, authoritative and insightful information available. Over the years, the report has been continually improved to provide data that compiles performance across the banking industry. When SASRA eventually catches up, the consolidation of the different regulators’ reports will provide a more meaningful picture of the Mortgage Market in Kenya.

You can check out past editions of the reports by the Central Bank of Kenya.

• The Mortgage Process in Kenya: An Introduction

• Step #1: Understand the Basics of Mortgages in Kenya

• Step #2: Prequalification for a Mortgage

• Step #3: Choosing the Right Mortgage Type

• Step #4: Gather Required Documentation

• Step #5: Submit Your Mortgage Application

• Step #6: Approval and Offer Letter

• Step #7: Legal Process and Documentation

• Step #8: Disbursement of Funds

• Step #9: Begin Mortgage Repayments

• Key Takeaways

The Mortgage Process in Kenya

The mortgage process in Kenya takes careful planning, a basic but firm grasp of the process, and the right resources. There will, undoubtedly, be slight adjustments and nuances with every lender in terms of requirements, terms and conditions. However, if you want to secure a mortgage in Kenya, this guide will provide you with a basic walk-through of every stage of the process.

From prequalification to property ownership, here’s an overview of everything you need to know about the mortgage process in Kenya.

Step #1: Understand the Basics of Mortgages in Kenya

Before beginning the mortgage process in Kenya, it’s essential to understand the fundamentals of mortgages. A mortgage is a loan designed to facilitate property acquisition, with the property itself serving as collateral until the loan is fully repaid.

In Kenya, mortgages are provided by banks and other licensed credit institutions such as Savings and Credit Cooperative Societies (SACCOs) and Microfinance Institutions (MFIs). Each lender has unique terms and conditions, making it crucial to research and compare options. Familiarizing yourself with basic mortgage terminology, key players and regulators in the market, and the relevant regulatory frameworks is a smart first step.

Step #2: Prequalification for a Mortgage

The pre-qualification stage helps determine how much you can borrow. Lenders assess your income, existing debt, and creditworthiness to estimate your borrowing limit.

You can also use online mortgage calculators to estimate borrowing limits and create scenarios with varying loan periods. This allows you to plan your budget, evaluate different debt-to-income ratios, and better prepare for the mortgage application process. Prequalification serves as the foundation for your financial planning and property search.

Step #3: Find a Mortgage Type That Fits You

There is a wide variety of mortgage products tailored to different needs. Common types include:

• Fixed-Rate Mortgages: Interest rates remain constant, ensuring predictable monthly payments.
• Adjustable-Rate Mortgages: Rates fluctuate, making payments less predictable.
• Sharia-Compliant Mortgages: Interest-free options based on Islamic finance principles.
• Construction Loans: Tailored for phased home-building projects.
• Access Mortgage Facility: A revolving credit loan allowing borrowers to transfer funds from their loan accounts to transaction accounts.
• Diaspora Mortgages: Specially designed for Kenyans living abroad, offered in multiple currencies such as KES, USD, GBP, and EURO.

Step #4: Gather Required Documentation

Mortgage Lenders typically require documentation to verify your identity, income, and details of the property. Common requirements include:

Borrower Identification and Financial Status:

• National ID or Passport
• KRA PIN Certificate
• Marriage Certificate or Affidavit of Single Status
• Bank Statements (6–12 months)
• Payslips or Audited Financial Statements
• Credit Reference Bureau Report

Property Details:

• Sale Agreement or Offer Letter
• Title Deed or Lease Agreement
• Property Valuation Report

Additional Requirements (varies by lender):

• Employer Introduction Letter
• Proof of Down Payment
• Construction Documents (for construction loans)

Ensure all documents are certified and up-to-date to avoid delays. Lender-specific requirements may vary, so always confirm directly with your chosen institution.

Step 5: Submit Your Mortgage Application

With your documentation ready, submit your application to the lender. This involves completing detailed forms and providing additional property information. Key tips include:

• Complete forms accurately and thoroughly.
• Submit certified copies of required documents.
• Be prepared for a property valuation.
• Seek clarification on terms before submission.

For diaspora applicants or construction loans, additional documentation may be necessary, such as foreign credit reports or approved building plans.

Step 6: Approval and Offer Letter

If approved, you’ll receive an offer letter detailing the mortgage terms. Carefully review aspects such as:

• Interest rates.
• Loan tenure.
• Monthly repayments.
• Closing costs.

Seek clarification on unclear terms. Delays in submitting complete documentation or conducting property valuations can prolong the approval process, which typically takes 1–3 months.

Step 7: Legal Process and Documentation

The legal phase begins after accepting the offer letter. It includes:

• Drafting the Sale Agreement: Outlines property transfer terms.
• Title Search: Verifies property ownership and encumbrances.
• Transfer of Title: Registers the title in your name while noting the lender’s charge.

During this stage, legal fees and stamp duty (4% in urban areas, 2% in rural areas) must be paid.

Step 8: Disbursement of Funds

After completing legal requirements, the lender disburses funds directly to the seller. You now own the property, although the title remains charged to the lender.

Step 9: Begin Mortgage Repayments

Repayments, which include both principal and interest, usually start a month after disbursement. Timely payments help avoid penalties or foreclosure. Automating payments can ensure you stay on track.

Key Takeaways:

• Prequalification establishes your borrowing capacity.
• The property serves as loan collateral.
• Repayments include both principal and interest.
• Full ownership is achieved after loan repayment.
• Plan to cover costs incidental to taking a mortgage, for example mortgage insurance and processing fees, property valuation and even stamp duty taxes.

Each borrower has unique needs, and lenders offer varying terms. Comparing options will help you understand the landscape of the mortgage market and find the best fit for your circumstances.

The Mortgage Process in Kenya can seem overwhelming, but with the right information and preparation, it becomes manageable. By understanding your financial capacity, researching lenders, and gathering necessary documents, you can navigate the process effectively and take a significant step toward owning your dream home.

• KMRC Affordable Home Loans PMLs

• KMRC “Affordable” Home Loans: Key Features

• About KMRC

• Funding model

• Partnerships With PMLs

• KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?

KMRC “Affordable” Home Loans program is a mortgage scheme financed by the Kenya Mortgage Refinance Company (KMRC) – a non-deposit taking financial institution in Kenya. Established in 2018 under the Companies Act of 2015, KMRC is reshaping mortgage finance in Kenya.

KMRC Affordable Home Loans PMLs

Loans under the KMRC Affordable Home Loans program are not issued by KMRC itself but instead disbursed by Primary Mortgage Lenders (referred to as PMLs). Currently, the following institutions have partnered with KMRC as PMLs:

• Commercial banks: KCB Bank, Cooperative Bank, DTB, HFC Limited, NCBA Bank, Absa Bank Kenya, Stanbic Bank, and Credit Bank
• Microfinance Institutions: Kenya Women’s Finance Trust (KWFT)
• SACCOs: Unaitas, Bingwa SACCO, Kenya Police SACCO, Safaricom SACCO, Harambee SACCO, Imarika SACCO, Imarisha SACCO, Apstar SACCO, Stima SACCO and Mwalimu National SACCO

SACCOs are aided to develop capacity in mortgage lending, including origination, developing underwriting criteria, and technical assistance. By working with SACCOs, KMRC aims to increase the reach of its mortgage products across the country, not just in urban areas and big towns.

KMRC Affordable Home Loans target to deepen accessibility to mortgages by offering loans with a single-digit fixed interest rate and long mortgage tenures. This makes them more affordable and accessible to a wider demographic of borrowers who would not otherwise be able to afford homes.

KMRC “Affordable” Home Loans: Key Features

• Reduced Interest Rates for Borrowers: KMRC obtains concessional loans in Kenyan shillings and extends these to its partner PMLs. They in turn pass on the benefit to mortgage borrowers at single-digit interest rates. The rates are also fixed which gives predictability and some certainty for KMRC, its PMLs and borrowers.
• Extending Loan Terms to Increase Affordability: KMRC’s funding allows partner PMLs to extend mortgage terms to up to 25 years.
• Supporting Down Market Lending: KMRC focuses on refinancing mortgages for low and moderate-income households. KMRC’s affordable home loans are capped at Kshs. 10.5 million for borrowers with a monthly income of 200,000 shillings or less.
• Supporting SACCOs as Mortgage Providers: For the first time in the Kenyan market, SACCOs can participate as mortgage providers through KMRC. Eleven SACCOs are shareholders in KMRC and act as partner PMLs.
• Promoting Competition and Innovation: KMRC’s entry into the mortgage market has increased competition among lenders and encouraged the development of more affordable mortgage products.

About KMRC

KMRC is regulated by the Central Bank of Kenya (CBK), while its capital-raising efforts are overseen by the Capital Markets Authority (CMA). It is a public-private partnership with the Kenyan government, through the National Treasury, which holds a 25% stake in the company, with private sector players owning the remaining 75%.

KMRC’s mandate is to:

• Provide long-term funding to PMLs which will make home loans more accessible and affordable for Kenyans.
• Contribute to the growth of Kenya’s capital markets. This is done through the issuance of corporate bonds as a source of sustainable long-term finance.
• Support the standardization of mortgage origination practices in Kenya.
• Contribute to the growth of the mortgage market in Kenya.

It aims to increase the availability of affordable housing, particularly for those in the moderate to low-income bracket. As such, the margins on loans are intended to cover operational expenses and develop long-term sustainability.

KMRC “Affordable” Home Loans program and funding model

This is how it works:

• KMRC obtains funding from a variety of sources, including the Kenyan government, international Development Finance Institutions (DFIs), and the capital markets. It also raises capital from the bond market and blends this more expensive capital market funding with the concessional funding to reduce lending costs.
• It then lends this funding to its partner PMLs, which include commercial banks, a microfinance bank, and 11 SACCOs – primarily lends to its shareholders, which includes 8 commercial banks, 1 microfinance bank, and 11 SACCOs. 
• The partner PMLs, in turn, use this funding to originate mortgages for individual borrowers. The PMLs set their interest rates on the mortgages, but KMRC encourages them to offer single-digit interest rates to borrowers. KMRC also requires that partner PMLs meet certain criteria in order to qualify for refinancing, including that the mortgages be for first-time homeowners and owner-occupied properties, be performing loans, and meet specified Loan-to-Value (LTV) and debt-to-income ratios.

Partnerships With PMLs

This model allows KMRC to leverage the existing infrastructure of the PMLs and to reach a wider range of borrowers. It is designed to address the challenges that have traditionally made it difficult for Kenyans to access affordable home loans.

By providing long-term, fixed-rate financing to PMLs, KMRC’s “Affordable” Home Loans program helps to reduce the risk and cost of mortgage lending. This makes it possible for PMLs to offer more affordable mortgages to borrowers. 

KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?

The presence of KMRC in Kenya’s mortgage market is a positive development and can be integral to driving homeownership in Kenya. Accessibility to affordable housing in Kenya is a complex, multifaceted problem, plagued with many challenges. The establishment of KMRC is a step in the right direction. The impact KMRC will have is still in its nascent stages.

With a reported disbursement of over three thousand mortgages over just five years, KMRC has energized the mortgage market. It has improved accessibility for individuals at lower levels of income than traditional mortgage lenders would ordinarily target.

Conclusion

Considering differentials in household incomes, factors like inflation, and an onerous and unpredictable tax regime, the dream is not yet within reach. Additionally, KMRC’s may need more innovative approaches for its funding to ensure the long-term sustainability of its funding model. The jury is still out on this one.

• What is a Mortgage

• Essential Terms in Mortgaging

• Types of Mortgages

• The Mortgage Market in Kenya

• Vital Statistics on Mortgages in Kenya (2023)

• Qualifying for a Mortgage

• Costs Associated with Mortgages

• Tips for Finding the Most Affordable Mortgages in Kenya

Getting a Mortgage in Kenya is no easy walk in the park. The reality is that homeownership remains far out of reach for many Kenyans. The Central Bank of Kenya, in its 2023 Bank Supervision Report highlights that low levels of income, the high cost of property purchases and limited access to affordable long-term finance are the key deterrents to the uptake of mortgages.

Mortgages are, however, seen as the bridge between renting and owning property. In as dauting as the process of securing a mortgage might be to the vast majority, they are an option well worth understanding. Of course, you have the option of deferring your homeownership dreams and saving your way to your dream home or even leveraging your SACCO or Chama through an unsecured loan. Still, if you don’t know what you don’t know, then you may be missing out.

Getting a Mortgage in Kenya: What Are Mortgages?

A mortgage is a loan secured by real estate, where the borrower (mortgagor) agrees to repay the lender (mortgagee) over time, typically through monthly payments, with the property acting as collateral.

This loan is specifically designed to help you purchase property, using the property itself as security.

In Kenya, mortgages are typically offered by banks, SACCOs, and microfinance institutions, and they cater to individuals looking to own homes, develop land, or refinance existing loans.

Essential Terms in Mortgaging

• Principal: the original amount borrowed in the mortgage (the base amount upon which interest is calculated).
• Interest: The cost of borrowing money, expressed as a percentage of the principal, paid to the lender.
• Interest Rate: The percentage charged annually by the lender for the borrowed money. It can be fixed (unchanging throughout the loan term) or variable (subject to periodic adjustments based on market conditions).
• Amortization: The process of paying off the loan through scheduled payments over time, which typically include both principal and interest.
• Tenure: The length of time agreed upon for repayment of the mortgage, commonly ranging from 5 to 30 years.
• Monthly Repayment: The amount the borrower pays each month, comprising of two elements – the principal repayment and interest charges. Depending on the agreement with the lender, it sometimes includes any applicable taxes and any mandatory insurance premiums charged under the mortgage.
• Down Payment: The upfront cash payment made by the borrower, often expressed as a percentage of the property price (e.g., 10%-20%).

Getting a Mortgage in Kenya: The Different Types of Mortgages

Kenya offers various mortgage options tailored to different needs. Understanding these can help you choose what works best for you:

• Fixed-Rate Mortgages: These come with an interest rate that remains constant throughout the loan period, offering stability in monthly payments.
• Adjustable-Rate Mortgages: Here, interest rates fluctuate based on market conditions, which can be risky but sometimes cheaper in the short term.
• Sharia-Compliant Mortgages: They do not carry any interest charges but instead rely on profit-sharing agreements and are typically only available to adherents of the Islamic faith.

Getting a Mortgage in Kenya: An Overview of the Mortgage Market

In Kenya, mortgages are typically issued by banks (traditional lenders). While banks are estimated to hold the larger portfolio of mortgage loans, Savings and Credit Cooperative Organizations, (SACCOs) and Microfinance Institutions (MFIs) augment the financing gap for mortgages typically lending to their members only at lower rates compared to commercial banks.

While banks and MFIs are regulated by the Central Bank of Kenya (CBK), which publishes a Bank Supervision Report each year which includes data on mortgage loans issued by banks, SACCOs, which are regulated by the Sacco Societies Regulatory Authority (SASRA) which doesn’t provide data on mortgage loans issued by SACCOs.

Vital Statistics on Mortgages in Kenya (2023)

Data from the CBK’s Annual Bank Supervision Report for 2023 (which does not include mortgages disbursed by SACCOs) shows the following:

The five top mortgage lenders in Kenya in 2023 and their respective mortgage portfolios are:

• • KCB Bank Kenya Ltd: Ksh.88,083 million
  • Stanbic Bank Kenya Limited: Ksh.34,554 million
  • HFC Ltd: Ksh.24,021 million
  • Standard Chartered Bank Kenya Limited: Ksh.23,020 million
  • NCBA Bank Ltd: Ksh.21,749 million
  • 5 percent of mortgage lending in Kenya was done by 9 institutions, including the top 5 listed above.
  • The average mortgage loan size in Kenya in 2023 was 9.4 million.
  • The average interest rate charged on mortgages in 2023 was 14.3 percent.
  • The average loan maturity for a mortgage in 2023 was 11.7 years, with the shortest loan being 5 years and the longest 18 years.

Several SACCOs and deposit-taking microfinance institutions (MFIs) offer mortgage products. Notably, SACCOs such as UNAITAS, Stima SACCO, Mwalimu Nation SACCO, Ukulima SACCO, Harambee SACCO and several others offer mortgages to help members achieve homeownership.

The Kenya Mortgage Refinance Company (KMRC) is partnering with banks, MFIs and SACCOs such as Harambee SACCO, Ukulima SACCO, UNAITAS and Mwalimu National SACCO to provide and extend access to affordable mortgages. Other SACCOs, like AMREF SACCO, are developing innovative products (its Miliki Mortgage Loan product), designed for homeownership and property investment with flexible financing options. These mortgage products typically feature competitive interest rates and repayment terms.

In addition, banks like Diamond Trust Bank (DTB), Dubai Islamic Bank, National Bank of Kenya, Kenya Commercial Bank (KCB) are also developing Sharia-compliant financial products for the housing finance market that adhere to the principles of Shariah (Islamic Law) and are consistent with the ethical and moral values of Islam.

As far as MFIs go, institutions like Kenya Women Microfinance Bank (KWFT), Faulu Microfinance Bank, and Uwezo Microfinance Bank also offer mortgage and housing loans, which cater to the needs of home buyers through mortgages for acquisition and construction of homes.

Getting a Mortgage in Kenya: Qualifying for a Mortgage

Typically, financial institutions use a variety of risk-assessment tools to decide if you meet the threshold of credit-worthiness for the loan amount you seek. They are in the business of making profit so naturally, they are looking at an acceptable level of risk for the funds you intend to borrow – one that ensures that should you default, they can recover their financial losses comfortably. In the most basic of terms, you would need to meet the following criteria just to prequalify:

• Have a Stable Income: Lenders require proof of steady income, whether salaried or self-employed.
• A Dependable Credit History: A good credit score increases your chances of approval and, potentially, even better rates.
• A Professional Property Valuation: The property you intend to buy must be professionally valued and deemed suitable as collateral.

The financiers will also make assessments around your level of debt at the time of borrowing, your job security, the resultant debt-to-income ratio given the repayments you will be required to make when the mortgage is released, your compliance with existing debt obligations and regulatory obligations, outstanding risks that may be associated with the property you intend to acquire, prevailing market and economic conditions, your character and assessments of personal risk based on your lifestyle and many other factors.

They will be looking out for anything that stands out as a possible red flag, but also, any factors that may diminish their likelihood of recovering the loan from you without earning the interest for which they financed the acquisition.

Costs Associated with Mortgages

Beyond monthly repayments, mortgages attract the following costs:

• Processing Fees: A percentage of the loan amount, usually between 1% and 2%.
• Valuation Fees: This are costs for a professional assessment of the value of the property.
• Legal Fees: Costs for property transfer and registration, and costs for the registration of a charge
• Insurance: This includes life insurance for the mortgagor and property insurance for both contents as well as the physical structure which are mandatory to protect the asset.
• Stamp Duty: This is charged at 4% of the property’s value in urban areas and 2% in rural areas.

Tips for Finding the Most Affordable Mortgages in Kenya

Affordability is a top concern for most Kenyans seeking mortgages. Key factors to consider include:

• Interest Rates: Compare rates from various institutions to find the cheapest mortgages in Kenya. Some SACCOs and microfinance lenders offer competitive rates.
• Loan Tenure: Longer loan periods result in lower monthly payments but higher total interest paid. It is important to choose a term that aligns with your financial goals.
• Hidden Costs: Watch out for additional charges, such as legal fees, valuation fees, and stamp duty, which can significantly increase the cost.

Getting a Mortgage in Kenya affordably requires, you to shop around and compare the different offers from banks, SACCOs, and microfinance institutions. Shopping for a mortgage may also require you to hone your negotiation skills and push for better rates or fee waivers. You can use an online Mortgage Calculator to estimate monthly payments and overall costs so that you can plan ahead and ensure that you have funds for fees and down payments.

Conclusion

Mortgages are a viable path to homeownership, but they require careful consideration. By understanding them, you can make an informed decision that aligns with your financial goals. Whether you’re eyeing a house in the suburbs or an apartment in the city, take the time to explore all your options and consult experts for advice.

In Part 2, we delve into how mortgages work and developments in the market that will deepen financial inclusion that may make mortgages more accessible.