The property market is being "distorted" by expensive mortgages as potential buyers turn to renting while developers and landlords can not access financing, slowing down supply.
HassConsult and The Mortgage Company's first quarter mortgage report shows the average mortgage rate is 16.23 per cent, almost unmoved from the previous quarter's 16.5 per cent.
When potential homebuyers and self-builders do not access financing, pressure turns on rents. For instance, asking rents for all properties increased by 2.3 per cent on average between January and March, and were nine per cent higher over March 2013.
Rents for semi-detached houses rose fastest by 2.7 per cent and were 18.1 per cent over the year to March.
"The surge in townhouse (semi-detached house) rents is one of the most visible signs of the problems that are now deepening, and even beginning to distort the property market, as a result of the bottleneck in mortgages," Sakina Hassanali, head of research and marketing at HassConsult, said yesterday.
Analysts at HassConsult and TMC however argue that even with rising asking rents, landlords may not be collecting enough to offset mortgage repayments.
This means that the attractiveness of buy-to-let units is waning, which has slowed new constructions and left developers with dead stock that is taking long to shift.
"It's a nasty cycle and one that we will do well to break as soon as possible," Hassanali said.
Standard Chartered Bank offered the lowest mortgage rate for the second quarter in a row at 13.9 per cent. State-owned Consolidated Bank remains the most expensive at 19 per cent for three straight quarters, having increased the rate by a percentage point from the 18 per cent it offered between July and September.
Only three banks had reduced mortgage rates by end of March, a cut that didn't put a damper on the average rate from 15 commercial banks surveyed.
CBA slashed its mortgage rate by two per cent to 15 per cent, shooing it to the fourth best rate position from eleventh in the previous quarter. KCB S&L cut its rate to 14.5 per cent from 16 per cent, while Barclays reduced to 14.9 per cent from 15.5 per cent.
"There is clearly something wrong with the market dynamics, which comes down to critical aspects (of funding, affordability and accessibility)," said TMC's managing director Caroline Kariuki.
"In the absence of any more constructive approach from the commercial lenders, mortgage take-up now depends on government intervention, either through supporting mortgage-backed securities to stimulate the secondary mortgage market, or through the creation of housing funds and even mortgage subsidies."
In light of market dynamics, developers are seeking alternative financing routes, including equity and sovereign loans.
The mortgage market crack has also created boon for foreign developers, "who have a huge head-start over Kenyan counterparts through their access to lower cost finance from home nations".
Foreigners however still face the same problem when it comes to selling the units, as the "restrictive high cost financing" keeps potential homebuyers and buy-to-let landlords away.