- With the increasing housing demand, Kenya’s mortgage market has seen an upward trajectory over the years.
- According to a World Bank report, the mortgage market is the third most developed in Sub-Saharan Africa with mortgage assets equivalent to 2.5 percent of Kenya’s GDP.
- Kenya has seen significant population growth over the years, accompanied by a substantial migration from rural to urban areas in search of better opportunities.
- Kenya’s mortgage market holds great promise due to increasing housing demand, government initiatives, and advancements in technology.
With the increasing housing demand, Kenya’s mortgage market has seen an upward trajectory over the years as a result of the increasing population as well as urbanisation with more people relocating from rural to urban areas, in search of employment or income generating opportunities. As such, there has been an increased demand in housing, with many Kenyans opting for mortgages to help finance their house development projects or as they purchase homes.
According to a World Bank report, the mortgage market is the third most developed in Sub-Saharan Africa with mortgage assets equivalent to 2.5 percent of Kenya’s GDP. Only Namibia and South Africa rank higher. This only goes to show the mortgage market in Kenya has a lot of opportunities which in one way or another are definitely met with a couple of challenges.
READ MORE: Mortgage Application Process in Kenya: Step-by-Step Guide
Table of Contents
Opportunities in Kenya’s Mortgage market.
Government Initiatives. In an aim to promote home ownership and help aid in the growing demand for housing, the government has taken upon itself to introduce the Affordable housing Program, targeting low and middle-income earners. Furthermore, the Kenya Mortgage Refinance Company (KMRC) has been established to offer long-term financing to primary mortgage lenders, enhancing the availability of affordable home loans for Kenyans. The government aims to boost the number of mortgages from less than 30,000 to over 1,000,000 annually by facilitating low-cost mortgages under Kshs 10,000. Additionally, there are plans to reform the housing finance system through the creation of a National Housing Fund and Cooperative Social Housing Scheme, ensuring the uptake of homes developed under the Affordable Housing Program.
Advancement in Technology. Technological advancements have significantly transformed the mortgage industry, offering a breath of fresh air to both consumers and lenders. Digital mortgage platforms and mobile banking have greatly simplified the process of obtaining a mortgage, making it more accessible to a broader audience. Prospective homebuyers can now use tools like mortgage calculators to easily obtain estimates on mortgage costs and monthly payments, promoting transparency and convenience. These tools help buyers make informed decisions by providing clear insights into the financial commitments involved in purchasing a home.
Moreover, technology has streamlined the application process for lenders. With digital platforms, lenders can quickly and efficiently vet and process mortgage applications, reducing the time and effort required for both parties. This increased efficiency not only speeds up the approval process but also enhances the overall customer experience. By leveraging these technological innovations, the mortgage industry is better equipped to meet the needs of today’s fast-paced, digitally-driven world, ultimately making home ownership more attainable and straightforward for many individuals.
Increasing Demand for Housing. Kenya has seen significant population growth over the years, accompanied by a substantial migration from rural to urban areas in search of better opportunities. Consequently, the demand for housing has been steadily increasing, driving substantial investment in the real estate market. This surge has led to a boom in real estate investments and property purchases, creating a valuable opportunity for the mortgage industry to expand and thrive.
Challenges in Kenya’s Mortgage Market
High interest rates. The average interest rate on mortgages in Kenya is currently 12.2%, significantly higher than in many other markets. This high rate makes borrowing costly, putting homeownership out of reach for many Kenyans. In comparison, countries with more developed mortgage markets, like the United States, often have rates around 3-4%.
READ ALSO: KMRC’s Affordable Mortgage Options for Middle-Income Buyers
Several factors contribute to Kenya’s high mortgage rates, including economic instability, limited long-term funding for banks, and a small mortgage market. Additionally, high operational costs and stringent regulations in the banking sector further drive up interest rates. These challenges make it difficult for many Kenyans to qualify for mortgages, discouraging potential homeowners and limiting the growth of the housing market.
Lack of Affordability. A majority of Kenya’s population is characterized by low to middle income earners. As per a research conducted by the Africa Research Institute, 75% of Kenyans earn less than KSh50,000 per month while 23% earn between KSh50,000 and KSh100,000 per month. With such limited income, taking out a mortgage is strenuous due to the monthly deductions required. Higher interest rates exacerbate this difficulty, making homeownership even less attainable for many.
Inadequate Infrastructure and Services: The lack of comprehensive infrastructure and services in many areas makes real estate development more expensive and less attractive. Inadequate roads, water supply, and electricity increase the costs of developing new properties, which are then passed on to consumers. Consequently, property prices rise, forcing people to borrow more and secure larger mortgages, which remains unattainable for most Kenyans. This further limits the affordability of housing in Kenya.
READ MORE: Cash vs Mortgage Financing: Which is the Better Option?
Conclusion
Kenya’s mortgage market holds great promise due to increasing housing demand, government initiatives, and advancements in technology. However, it is hampered by high interest rates, lack of affordability, and inadequate infrastructure. Addressing these challenges through comprehensive economic and policy reforms is essential to unlock the market’s potential and make homeownership accessible to a broader segment of the population.
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