Sarah is a small scale trader at Gikomba market. Her net income is around Ksh. 40, 000 per month. A few years ago, she approached a local bank with the intention to apply for a mortgage, but was turned away as her income was not sufficient to finance a mortgage. “I was tired of paying rent at the end of each month, and therefore decided to look for an opportunity to own my own home”, she says. Since she could not afford to buy a home in cash, she decided that a mortgage was the best way forward for her. “I visited various banks and compared the available mortgage rates, but most of the rates were beyond my scope” she adds. Sarah’s sentiments are shared by many Kenyans who cherish the dream to own a home, as most mortgage products on the market are tailored mostly for the upper income bracket. The lower income bracket often has little or no access to housing finance services.
Faced with the current economic downturn, buying a home or land remains a pipe dream for many Kenyans. In light of this, a mortgage often comes in handy for many people contemplating a long term investment such as a home or land. A mortgage is basically a loan on a property that is required to be paid back within a specified period of time with a specified amount of interest. It simply means that you give the bank the right to own or possess the property should you fail to pay within the stipulated period. As such, the property itself acts as collateral for the loan. The interest accruing on a mortgage is known as a mortgage rate and varies from one bank to another. It is worth noting that banks rarely ever give 100 % financing on mortgages and one is therefore required to raise the deposit for the property or investment.
The rise in inflation has had a tremendous impact on property prices. This economic trend has in turn seen mortgage rates shoot through the roof over the last few years. Nevertheless, the country has recorded a marked increase in the mortgage market especially within the last decade, rising mortgage rates not withstanding. A survey conducted by the Central Bank in conjunction with the World Bank in 2010 revealed that Kenya’s mortgage market had grown from Ksh 19 billion in 2006 to approximately over 61 billion by May 2010.This means that in spite of the upsurge in mortgage rates, Kenyans still appreciate the value of home ownership and are willing to take the risk of investing in mortgages. It also shows a more informed public in as far as property finance is concerned.
In Kenya, the average mortgage rate stands at around 15.74 %, although some banks charge as high as 20% interest on mortgages. Thus it is imperative for one to conduct extensive research on the available mortgage products, in order to obtain the best mortgage rate on the market. It is also important for one to ensure a steady income before committing to a mortgage in order to avoid frustration or even a possible foreclosure in future should he/she default in payment.