Britam forecasts rise in mortgage uptake in era of interest rate caps

The recent capping of interest rates could trigger increased uptake of mortgage, analysts at fund management firm Britam have predicted.

The Banking (Amendment) Act 2016, which came into force on September 14, sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).

The law also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR.

The CBR is currently set at 10 per cent, meaning that banks are barred from charging interest on loans above 14 per cent.

Financial institutions offered mortgages at between 12 and 21.4 per cent before the rate caps.

A report by real estate and investment firm Cytonn released in April this year reckoned that apartments can only be affordable to the mass market at mortgage rates of about eight per cent, with detached houses at about three per cent.

According to the research, the resultant low rates is good news for Kenyans’ dream of owning homes and are likely to incentivise potential home buyers who have been locked out of the mortgage market.

“Accessibility and affordability of mortgages will become a reality now. More people have been netted into the basket of being able to borrow or take up a mortgage in the banking sector. This is a big development for the housing and construction industry,” said Britam Asset Managers chief investment officer Elizabeth Irungu.

Kenya currently has only about 22,000 mortgages worth Sh164 billion for a country of 44 million people - equivalent to 2.7 per cent of the Gross Domestic Product (GDP), compared to South Africa where mortgage to GDP ratio is about 24.2 per cent.

Several studies have showed that Kenya’s mortgage market has not grown at par with the boom in the construction sector mainly due to low income levels and high cost of mortgages made worse by high property prices-- all of which discourage potential homeowners from borrowing.

The Britam research concludes that opportunities outweigh risks for banks even as they enter into the era of thinned interest margins with the rate caps.

“Historically, banks have derived majority of their non-funded income from other fees, making up about 44 per cent of non-funded income in 2015,” reads the report.


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