Kenyans Earning Sh150,000 and Below Per Month Eligible for Govt's House Loans

17 August 2020

Nairobi — The Kenya Mortgage Refinancing Company (KMRC) has announced that it will begin lending in September 2020, following approval to operate by the Central Bank of Kenya.

The treasury backed lender, is set to lend money to local financial institutions at an annual interest rate of 5 percent, enabling them to write home loans at 7 percent, which is 6 percentage points lower than the market rate of approximately 13 percent.

The subsidized rate will be available to Kenyans earning Sh150,000 and below per month, while those earning more than that will continue to borrow house loans at market rates.

According to online sources, KMRC has so far mobilized approximately Sh40 billion, including Sh2.2 billion in equity capital, Sh25 billion committed by the World Bank, Sh10 billion from African Development Bank, and plans to raise an extra Sh5 billion from the capital markets.

The facility aims to grow the number of mortgage accounts to 60,000 by 2020.

Analysts at Cytonn Investment however say that with the value of outstanding non-performing mortgages at Sh27.3 bn as at 2017, they are of the view that the Sh40 bn will be a one off and thus the 7 percent interest rate will not be sustainable once the initial capital is exhausted; the facility will also need to move back to the market rate of approximately 13 percent.

Uptake and access to mortgages in Kenya has remained relatively low mainly due several reasons among the, low-income levels that cannot service a mortgage.

Other reasons are soaring property prices, high-interest rates of up to 18 percent and high deposit requirements.

Additionally, there is exclusion of employees in the informal sector due to insufficient credit risk information, and lack of capital markets funding towards real estate purchases for end buyers.

Lack of long-term deposits for lenders to match house loans is also a contributing factor, thus limited writing of the same.

"We expect that operationalization of KMRC will resolve some of the above challenges, thus improving Kenya's mortgage penetration rate which stood at 3.2 percent of gross domestic product (GDP) as at 2017," the analysts said.

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