A World Bank report on Kenya’s mortgage market says the country is the third most developed in sub-Saharan Africa, with assets equivalent to over 2.5 per cent of the country’s gross domestic product.
However, with an average housing loan going at the rate of nearly 17 per cent, owning a home has remained a pipe dream for many Kenyans. This grim reality is betrayed by increasing housing deficit.
For instance, in 2011, the annual housing deficit was estimated at 156,000 units per year. In 2012, it increased to 200,000 units. In 2013, the gap, according to Old Mutual Securities’ Unlocking Housing Potential report, the deficit stood at between 210,000 and 350,000 units per year.
According to a 2013 fourth quarter report released in January this year by The Mortgage Company and Hass Consult, potential home buyers are increasingly preferring to rent houses or acquire short-term loans to finance home projects.
“Investment in property is losing its sparkle, tightening demand for rental property while slowing down the building, construction, and housing market,” said the head of research and marketing at Hass Consult, Ms Sakina Hassanali.
And with six of the 16 banks that offer mortgage loans maintaining lending rates sky-high, the average cost of home loans stayed put at about 17 per cent. By early February this year, the average mortgage cost was at 16.89 per cent.
Standard Chartered Bank had the lowest rate at 13.9 per cent, while Consolidated Bank had the highest at 19 per cent. This is despite the Central Bank’s rate of 8.5 per cent.
In spite of these grim statistics, Money set out to find cheaper housing options that your salary can help you get in the market today.
The rising home developer has set the lending rate at 15.5 per cent. Recently, the firm hosted a competition aimed at developing low-cost houses with mortgages of up to Sh1 million.
If you were to negotiate a repayment period of 10 years with a net monthly income of between Sh30,000 and Sh50,000, your monthly repayment would be about Sh16,400. Similarly, a Sh2 million mortgage would take at least Sh32,800 of your monthly pay while a Sh4 million housing loan for the same period would take up Sh65,700 per month.
EQUITY/MABATI ROLLING MILLS
In November 2011, Equity Bank launched a home loan lending plan for low-end income earners in partnership with Mabati Rolling Mills.
The bank has since been offering as little as Sh20,000 mortgages for ready-made steel houses. The minimum home loans the bank pledged stood at Sh48,000 in contrast to Sh6.6 million average home loan rate in the mainstream industry.
By the third quarter of 2013, however, Equity Bank was among the most expensive lenders at 18 per cent, together with Family Bank, Diamond Trust Bank, and Consolidated Bank, all at 18 per cent.
DEVELOPMENT BANK OF KENYA
The lender has been offering probably the lowest mortgage rate at 8.5 per cent to buyers of houses at Great Wall Apartments in Mlolongo, Nairobi, with a 25-year repayment period.
This has been a major decrease from its base rate of 19 per cent offered in its other mortgage products. The homes on offer are being developed by Erdemann Property Ltd and have been going for between Sh4 million and Sh6 million.
Subsequently, with a salary of between Sh50,000 and Sh70,000, you can easily qualify for the loans. For Sh4 million mortgage, you would part with Sh32,200 a month and Sh48,300 for a Sh6 million house.
RAFIKI MICROFINANCE BANK
The Chase Bank’s subsidiary has been funding homes built using low or alternative technology at between Sh1 million and Sh3 million.
The technology uses low-cost materials such as interlocking concrete blocks and light steel instead of timber, enabling a 30-day completion. With a repayment period of 10 years, home buyers have pay Sh19,000 a month. However, the interest rate has remained at 18 per cent.
Under the Rafiki Home Loan, which targets low and middle income earners, the minimum amount accessible is Sh300,000 while the maximum is Sh5 million. The maximum repayment period is 20 years.
NATIONAL HOUSING CORPORATION
The government-owned entity is currently the cheapest mortgage lender at 13 per cent. If you take a Sh1 million loan with NHC with a repayment period of 72 months (six years), you will part with Sh20,074 a month.
By the end of six years, you will have paid Sh445,000 plus the principal. Provision of homes outside Nairobi is one of the enticing attributes of the firm’s products.
It controls 35 per cent of the local mortgage market and provides housing loans at varying interest rates.
Recently, the firm launched the Ezesha package that is targeted at customers with monthly incomes of up to Sh350,000. The mortgage attracts a 15.9 per cent interest on reducing balance and provides 105 per cent home financing. Nonetheless, it is available to loans below Sh15 million.
The Nairobi-based institution has this year set aside Sh430 million for construction of low-cost houses.
The money is to be channelled through saccos which, unlike commercial banks, are expected to lend at a 12 per cent rate maximum. In a related housing project with the UN and the government, Shelter Afrique is developing 2,500 units in Mavoko, Machakos County for low-end consumers.
A one bedroom unit is expected to cost Sh425,000 while a three-bedroom house would attract Sh6 million.
KCB HOME LOAN
The package offers a minimum Sh300,000 with a maximum loan repayment period of 25 years for home or construction and five years for plot purchase. Currently, the interest rate for KCB mortgage stands at 16 per cent.
CFC STANBIC ORDINARY HOME LOAN
To qualify, the loan or property should be between Sh3 million and Sh10 million. For 100 per cent financing, you will need to be earning at least Sh100,000. The repayment period is 20 years.
The property, though, must be a fully developed residential home. However, you can get 90 per cent financing for Sh1 million home loan if you are self-employed with a repayment period of 20 years.
In the third quarter of 2013, CFC Stanbic was the lowest mortgage lender at 13.5 per cent.
CO-OP GOOD HOME LOAN
The maximum repayment period is 20 years. However, you will be allowed to choose a term ranging from one to 20 years depending on your retirement age, ability to pay, and nature of request. The product is currently attracting a 15.75 per cent annual interest rate.
Apart from taking a mortgage, you also have alternatives to help you buy or build your home. However, before you opt for this consider the pros and cons of each, says personal finance expert James Njenga. The options include:
• Personal loans
• Sacco loans
• Property financing loans
• Islamic home loans — You will jointly buy the house with the bank under an agreed ratio. The units owned by the bank will be rented to the customer under set terms. Unlike conventional mortgage, any loss or expenses incurred in buying the unit will be shared equally between you and the lender according to your shares.
How to service your mortgage faster
1 Pay more than the minimum amount:
According to personal finance expert Waceke Nduati-Omanga, mortgages and any other loan you may take operate on the same principal of reducing balance.
“Every month, the interest is calculated on the basis of the part of the loan that is still outstanding,” she says. Subsequently, adding extra lump sums of money to your principal or the amount borrowed minus the interest will enable you pay faster. “Pay more than the minimum amount to clear faster. This will also help in reducing the overall interest costs,” she says.
2 Pay off lump sums:
Make a written arrangement with your lender in order to pay large amounts within the first three years of your mortgage.
This could save you at least three shillings for every shilling paid.
3 Repay long-term mortgage with a short-term strategy:
If your mortgage goes up to 25 years, try and work towards committing yourself to making monthly repayments equal to half the number of months.
For instance, make payments as though you are repaying a 12-year mortgage.