• Critical Considerations for Mortgage Readiness: #1: Is a mortgage a good fit for you?

• Critical Considerations for Mortgage Readiness: # 2: Can you weather the rough and tumble of the economy?

• Critical Considerations for Mortgage Readiness: # 3: Do you have what it takes financially to muster the commitment?

• Critical Considerations for Mortgage Readiness: # 4: Do you have an Exit Strategy?

• Critical Considerations for Mortgage Readiness: # 5: What are your alternatives, and do they make more sense?

• Critical Considerations for Mortgage Readiness: # 6: So, should you take out a mortgage?

A mortgage is one of the most monumental financial commitments one may ever take on and requires the borrower to take into account some critical considerations for mortgage readiness. Over the course of tenure of your mortgage, you will be exposed to the ravages of economic instability, inflation, high interest rates and the consequences if you default.

To succeed, you may have to adjust spending habits, vigorously evaluate your financial health and live under the threat of economic vagaries that could topple your house of cards all while praying that your financial stability doesn’t teeter under the weight of anything earth-shattering like job loss or ill health. Here are a few of the critical questions you need to determine whether you’re truly ready for the financial weight of a mortgage, or if your alternatives make more sense before taking the plunge.

#1: Is a mortgage a good fit for you?

Most properties financed through mortgages cater to middle- and upper-income earners. Even with the introduction of “affordable housing” programs, family homes carrying a price tag of Kshs. 3.5 million aren’t within reach of the majority.

A Best-Case Scenario: Acquiring a 3-Bedroom Unit under the Housing Program at Kshs. 3.5 Million

Let’s consider a scenario where you, prospective home buyer with two (possibly three) children wishes to buy the “most affordable” housing” unit out there at a cost of Kshs. 3.5 million.

At a minimum, you need to have savings of at least Kshs. 350,000 (10%) to cover the closing costs and incidentals (stamp duty, valuation, processing fees, insurance et al), and at least double that amount if your lender requires you to pay a 10% deposit.

If your bank or SACCO is one of the partner institutions of the Kenya Mortgage Refinancing Company (KMRC) and you qualify, you may then secure a mortgage at rates as low as 9.5% with a term of up to 25 years. Even after applying a debt-to-income ratio of 40% against your take home pay (net salary), you will still need to factor in taxes and statutory deductions – approximately 45% of your pay.

All things considered, here is the outcome:

• Savings for Deposit and Closing Costs: 700,000 to Kshs. 1,050,000
• Loan Amount: 2,800,000 to Kshs. 3,150,000
• Tenure: 25 years
• Debt-to-income-ratio (DTI: 40%
• Monthly Repayment: 24,465 (20% deposit) and Kshs. 27,525 (10% deposit)
• Net Monthly Pay: 65,200 (20% deposit) and Kshs. 68,800 (10% deposit)
• Gross Monthly Income: 136,000 (if you paid 20% deposit) and Kshs. 153,000 (if you paid 10% deposit)

For the “average” Kenyan, whose income may hover below KES 50,000 monthly, even KMRC mortgages may not be unattainable.

High-income earners with stable, well-paying jobs or diversified income streams are better positioned to risk a mortgage. Established business owners with consistent cash flow and substantial savings could leverage mortgages to finance additional acquisitions while maintaining liquidity for other ventures. Kenyans in the diaspora often have higher incomes and may access lower interest rates abroad. They may consider a mortgage in Kenya to invest locally while maintaining financial flexibility abroad.

Mortgages ultimately make more sense when approached as part of a well-thought-out investment plan—like pooling resources with family or friends to acquire income-generating properties.

# 2: Can you weather the rough and tumble of the economy?

Frequent economic shocks—rising inflation, currency depreciation, and high unemployment—make the sustainability of long-term commitment to a mortgage incredibly challenging. Mortgage rates often oscillate over their term making repayments variable and unpredictable.

The weighted average lending interest rates, for example, in 2004 averaged about 12.5%. Had you borrowed 10 million with a 15-year mortgage tenure in 2004, your monthly repayment would have ballooned to Kshs. 193,000 per month (from Kshs.132,000) in 2013 when the rate peaked to 19.65%. If your monthly income remained fairly constant and inflationary pressures held you down, then your risk of default would have become all too real. Lending rates (traditionally ranging at 12-16%), can unravel your plan and push your repayments to daunting levels.

Unforeseen economic disruptions (like Covid 19, drought and other vagaries) destabilize incomes and compound inflationary pressures. In 2024, an unpredictable and incoherent tax regime, depreciating currency, rising interest rates and high inflationary pressures exacerbated by political and economic uncertainty have dampened the market, eroding financial resilience all around.

# 3: Do you have what it takes financially to muster the commitment?

Many Kenyans live paycheck to paycheck, leaving little room for the financial resilience required for home loan repayments. The “average” Kenyan, even those occupying enviable corporate positions are exposed to risks like job loss or health emergencies, which could derail their ability to service a mortgage. Default can lead to foreclosure, potentially wiping out any accumulated equity.

Do you have any risk mitigations to help you absorb these shocks, build financial resilience and cushion you from the risk of default?

# 4: Do you have an Exit Strategy?

A desirable acquisition isn’t just one that is “affordable”. In markets filled with uncertainty, a desirable acquisition may also be one that can be quickly liquidated.

When taking a mortgage, you cannot account for all the variables that could fail. And while “failure” isn’t something many people plan for, ignoring it isn’t entirely financially responsible.

If you plan for the possibility that things could go south or that you may have a change of heart down the road, a robust plan to counter that possibility ensures that you are better prepared to make necessary changes, adjust and adapt. Rigidity and sentimentalism around acquisitions may blind you from seeing a way out of a decision which may have been good when you made it but has now put you in a strangling chokehold. Holding the thinking that you may never be compelled by the unforeseen or the desirable to make a change the plan makes it hard to accommodate necessary change.

Think of an exit plan as an off-ramp – you get to shift course without losing the ultimate focus of the destination. It requires level-headedness and emotional detachment – a willingness to look at what may be possible beyond your decision to take the mortgage.

The best exit plans don’t just help you anticipate when change is necessary but also help you identify the action(s) required. It also allows you to see opportunities either when confronted with a hard choice (risk of default) or because you are actively observing your environment so that you willingly embrace any changes needed. Over the tenure of a mortgage, your paradigms may shift, as will the markets. Life-changing events (death, relocation etc.) may have happened so revising your earlier decision(s) is necessary.

You can choose to cash out and invest your equity in a property that makes more sense to you, rather than face the indignity of going through foreclosure. A graceful exit may even allow you to keep more of your equity. Do not be beheld to that which cannot behold you.

# 5: What are your alternatives and do they make more sense?

Would renting, or buying land whilst saving towards the goal of homeownership make more sense? Forget the pseudo-importance and perceived relevance you somehow acquire by carrying the tag “homeowner” – only you have to live your life, its conveniences and inconveniences. Are there alternatives (like rent-to-own, off-plan schemes or even negotiated settlements) that offer a more sustainable path to homeownership for YOU?

Is the option of joining a homeownership savings plan or SACCO to network with other prospective homeowners and leverage better terms from lenders at your disposal?

Even with the mortgage decision, would Lender X be preferential to Lender Y? Can you sell your mortgage to Lender Y and ditch Lender X to benefit from better terms (say a reduction in interest rate and repayments)?

None of these options comes without its pros and cons.

Critical Considerations for Mortgage Readiness: So, should you take out a mortgage?

All things considered, the pertinent question isn’t so much if you should as much as whether it is a good fit for YOU. That answer isn’t universal.

If you have the financial wherewithal (awareness, preparedness, courage and discipline) to manage a mortgage, go for it. Taking a mortgage is a decision that binds your life inextricably to your financier. Are you prepared to weather the financial storms that may come? Do you have an exit plan?

Every good thing worth achieving, every big dream, every great human endeavour and enterprise is almost always achieved against the tyranny of risk. Look before you leap, but don’t sit on the decision too long. As always, consult with professionals can help you navigate the decision.

• 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.