Kenyans earning Sh150,000 and below per month are from next month expected to start getting house loans from local banks and saccos at an annual subsidised interest of seven percent or nearly half the prevailing market rates.
The lower home loan rates are the product of the newly established Kenya Mortgage Refinance Company (KMRC), a Treasury-backed lender, which offers banks and saccos cash for onward lending to households.
KMRC will lend money to financial institutions at an annual interest of five percent, enabling them to write home loans at seven percent—lower than average market rate of 11.95 percent or 42 percent cheaper.
The chief executive of KMRC, Johnstone Oltetia, said the refinancing firm expects to start lending before the end of the third quarter, which closes on September 30.
Mr Oltetia said the firm’s operation permit from the Central Bank of Kenya (CBK) will be ready this month, adding that KMRC is ready to start lending after the regulator completes vetting its key staff and premises.
“The CBK has approved the KMRC to operate as a mortgage refinancing institution in principle but the only thing that remains is to have a licence,” said Mr Oltetia in an interview.
The government owns a 25 percent stake in KMRC, with the rest of the shares held by banks, saccos and microfinance institutions. Its board of directors has been in place since July last year.
A few weeks ago, Shelter Afrique and the International Finance Corporation (IFC), the World Bank’s private financing arm, became the newest shareholders of KMRC. Shelter Afrique paid Sh200 million for its shares.
KMRC has so far mobilised nearly Sh40 billion, including Sh2.2 billion in equity capital, Sh25 billion committed by the World Bank and Sh10 billion from African Development Bank.
It has plans to raise an extra Sh5 billion from the capital markets.
The non-deposit-taking KMRC plans to issue bonds at the capital markets and mobilise more funds from international development institutions.
Mortgage firms have shied away from writing housing loans, mainly due to a lack of long-term deposits in the industry to match them.
KMRC will now feed the banks with long-term funding, reducing the lenders’ reliance on short-term loans.
The funding is expected to drive the number of mortgage accounts to an estimated 60,000 by 2022. Commercial banks in Kenya had only 26,504 mortgage accounts in their books worth Sh224.8 billion as at the end of 2018, according to CBK data.
The mortgage penetration rate, at only 2.7 percent of gross domestic product (GDP), compares poorly to South Africa’s mortgage industry that makes up 31 percent of GDP.
Kenyans earning more than Sh150,000 per month will, however, continue to borrow house loans at market rates, with the role of KMRC being limited to mobilising more cash for mortgages and cushioning the primary lenders from losses linked to defaults.
Banks have gone slow on providing home loans due to a spike in defaults.
Default on mortgages jumped 41 percent to Sh38 billion in 2018, pointing to widespread distress in the real estate sector as the Kenyan economy slows down and property auctions pick up.
Latest CBK data shows that mortgages recorded the highest growth in non-performing loans (NPLs) last year from Sh27.2 billion in 2017, reflecting the struggle by investors to find buyers for their houses amid dwindling returns.
The CBK is yet to release the 2019 data.
Unpaid mortgages increased by Sh11.2 billion or 41.1 percent, a rise that outpaced other segments like manufacturing (19 percent), trade (four per cent) and personal loans (six per cent) in growth of default on loans, the CBK said.
The mounting defaults in the property market are a reflection of the struggles that mortgage holders are undergoing in an economy that has witnessed a string of job losses in recent months across nearly all sectors as companies intensify austerity measures to protect their profits.