Kenyan banks begin issuing cheap mortgage loans

Kenyan commercial banks have begun issuing cheap mortgage loans following access of State backed financing.

On Thursday, the Kenya Mortgage Refinancing Company (KMRC) made its first disbursement of Ksh.2.7 billion to four lending institutions with the funding backing 1,400 new mortgages.

The disbursement marked debut operations for the State mortgage refinancing company which aimed at providing cheap and long-term funding to banks for on lending to customers.

Among the benefiting institutions from the first disbursement include KCB which received the lion share of funds at Ksh.2.1 billion ahead of the Housing Finance Corporation (Ksh.514 million), Stima Sacco (Ksh.69 million) and Tower Sacco (Ksh.30 million).

The financing institutions are expected to lend the funds as mortgages at no more than 10 per cent with the facility cost tied at a flat five percent.

KMRC Chief Executive Officer Johnstone Oltetia expects the new financing to promote the uptake of affordable homes in the country by easing financing constrains.

“The new financing will go a long way in making affordable housing a reality in Kenya. We expect this to lead in the creation of new mortgages in the market. The hope is that this money will be lent out to Mwananchi in single digits,” he said.

Loans issued under the capacity will be capped at Ksh.4 million for houses bought within the Nairobi Metropolitan Area (NMA) and Ksh.3 million for the rest of the country.

Further, only Kenyans will gross earnings under Ksh.150,000 per month will have access to the cheap mortgages.

Saccos have welcomed their inclusion in the affordable mortgages plan as they stand to benefit from a relatively lower funding source from the KMRC disbursements.

“Access to the facility allows more of our members to gain access to mortgages over a long-term period and and lower costs,” said Tawa Sacco CEO Gabriel Waweru.

In addition to providing cheaper financing, KMRC expects the facility to trim the prevalence of non-performing loans (NPLs) within the mortgage industry.

“We will focus lending via a lower income-owner occupier model which we expect to drive down NPLs in the mortgage industry,” added Mr. Oltetia.

The aim of the refinancing company is to grow Kenya’s mortgage accounts to at least 60,000 by 2022.

KMRC is expected to raise a bond in the third quarter of 2021 to boost its funding base which already sits at more than Ksh.60 billion to include credit lines of Ksh.35 billion from the World Bank and the African Development Bank (AfDB).

According to data from the Central Bank of Kenya (CBK), there were 27,993 mortgage accounts as of December 2019 from 26,504 accounts in 2018.

Meanwhile, NPLs in the mortgage portfolio declined slightly to Ksh.31 billion from Ksh.38.1 billion supported by repayments.