By Albanus Muthoka
For most Kenyans, the ultimate measure of success is home ownership. Walking away from the monthly demand of paying rent is a goal that many hope to achieve. While the financial sector has provided the alternative of home ownership through mortgages, the uptake has been low. As of December 2021, only 26,723 mortgage accounts existed in Kenya- a very low rate in a country of over 50 million people.
The mortgage interest rates in Kenya range between 7% to 13%. This makes it quite unaffordable for the majority of Kenya. In response to these high rates, in 2018 the government established the Kenya Mortgage Refinance Company (KMRC) in order to propel the pillar of affordable housing. KMRC’s mandate is to issue long-term funds to primary mortgage lenders, at low rates, therefore prospective homeowners are able to take out loans at affordable rates. This in turn should make home loans more affordable and home ownership more realistic for Kenyans especially the low-income earners.
Despite this government intervention, mortgages which are meant to increase access to home ownership remain elusive for many Kenyans. This is due to a number of factors. The cost of acquiring land and construction is high, especially in the urban areas that many prefer. The burden of these high costs shifts to the prospective home owners discouraging Kenyans as it makes the home ownership dream seem even more unachievable. Another factor making mortgages less appealing is the initial deposits payable on the value of the home. Many low-income earners may not afford to raise the money required for a deposit considering that they have to look into raising legal fees for this process as well.
In 2020, more effort towards accessing home ownership was put in through the Retirement Benefits (Mortgage loans) (Amendment) Regulations, 2020. The regulations allow members of pension schemes to use up to 40% of their accrued benefits towards home ownership. Despite putting in place these provisions, pension-backed mortgages have attracted very few borrowers. Many Kenyans do not know of the existence of these advances, or how to access them.
In the last year since Enwealth Financial Services in partnership with Co-op Bank launched the pension-backed home ownership offering, we have received a load of inquiries relating to how one can use their accrued pension to build a home instead of purchasing a ready one. This is a reasonable request given that many Kenyans save over the years to acquire land in the hope of gradually saving more over time to build.
In order to increase the uptake of mortgages in Kenya there must be increased efforts to sensitize Kenyans on mortgages, as well as efforts to make initial deposit payments more realistic so that it is not burdensome for the average Kenyan to begin their home ownership journey. Loan facilities, especially pension-backed mortgages should be expanded to include home building, as many people already own land but have been unable to start building. Financiers should also take advantage of the KMRC long-term funds in order to lower the current interest rates on mortgages to single-digit rates. Such efforts once implemented will see an increase in homeowners in Kenya.
Albanus Muthoka is the Head of Pension and Consulting at Enwealth Financial Services. Email. [email protected]