• 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%).

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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.

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