Demand for mortgage loans increased by 8.1% last year due to an increased appetite for home ownership as opposed to rentals, latest statistics by the Central Bank of Kenya (CBK) indicate.

According to the CBK Annual Bank Supervision Report 2016, the value of mortgage loan assets outstanding increased from Ksh203.3 billion in December 2015 to Ksh219.9 billion in December 2016,
representing a growth of KSh16.6 billion.

The CBK conducts an annual mortgage survey to monitor developments and challenges in the mortgage market for residential housing. The survey, which is conducted annually, provides an update on the size of mortgage portfolio, mortgage loan characteristics, mortgage risk characteristics and the obstacles to mortgage market development.

Banks also suggested possible intervention measures to support the mortgage market and shared their views on the residential mortgage market outlook for 2017.

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According to the survey, about 72.8% of lending to the mortgage market was by five institutions that is, one medium sized bank (23.5%) and four banks from the large banks peer group (49.3%) as compared to 71.6% lending by five institutions, the same five institutions in 2015. The outstanding value of non-performing mortgages increased from KSh11.7 billion in December 2015 to KSh22 billion in December 2016.

“The NPLs to gross mortgage loans was 10.0 percent which was above the industry NPLs to gross loans ratio of 7.0 percent,” the report shows. It adds there were 24,085 mortgage loans in the market in December 2016 down from 24,458 in December 2015 a decrease of 373 loan accounts or 1.5% due to tighter credit standards by commercial banks. The average mortgage loan size increased from KSh8.3 million in 2015 to KSh9.1 million in 2016 due to increased property prices.

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Almost all banks were offering mortgage loans for both their staff and customers. However, the number of institutions offering mortgages to customers were 35 in 2016 as compared to 34 in 2015. The increase in the number of commercial banks offering mortgage loans is attributable to Sidian Bank Ltd, which
started offering mortgage loans in 2016, the report says.

The interest rate charged on mortgages on average was 13.46% and ranged between 10.5% – 18.0 % as compared to 18.7% average with a range of 11.9% – 23.0% in 2015. This was mainly due to interest rate capping which became effective on September 14, 2016. About 62.1% of mortgage loans were on variable interest rates basis compared to 89.3% in 2015.

“There seems to have been more uptake of fixed rate mortgages by home owners after the introduction of interest capping Law in September 2016,” the CBK report says. Loan to value (maximum loan as a percentage of property value) was pegged below 90 percent by majority of the banks in 2015 and 2016.

The average loan maturity was 12.0 years with minimum of five years and a maximum of 25 years in 2016 as compared to average loan maturity of nine years with a minimum of five years and a maximum of 20 years in 2015. Despite the interest rates caps, there is increased demand for mortgage loans due to perceived affordability. Th e CBK also says there is also increased appetite for mortgages as more borrowers perceive that they can qualify for higher amounts.

Commercial banks have, however, introduced tighter credit standards so the actual mortgage disbursements have been lower than the increased demand. Most commercial banks have also shown preference to offer short term loans as compared long tenure mortgage loans.

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