How mortgages have shut doors on many Kenyans dream of owning a home


It is everyone’s dream to have a place to call home. While some inherit the houses they live in and others get them as gifts, a majority of Kenyans have to work hard to provide for themselves and their families a roof over their heads.

In his final term, President Kenyatta named providing affordable housing as part of his Big Four agenda, pledging to construct 500,000 new houses for Kenyan families and reduce the cost of home ownership by 50 percent. The first project under the Affordable Housing Program, dubbed Boma Yangu, is located in the Ngara area of the City of Nairobi, and will consist of 1,370 units.

In the meantime, Kenyans are increasingly resorting to mortgages to acquire homes. As the nation joins the world in marking World Habitat Day today, below are some facts about the state of the mortgage market in the country.

What is the size of the mortgage market in Kenya?

There were 26,187 mortgages in the market in 2017, a nine percent rise from 24,059 in 2016. The number of mortgage loans has been on the rise over the years.

The value of outstanding mortgage loan assets was Sh223.2 billion in 2017, a two percent increase from Sh219.9 billion in 2016. In Kenya, almost all banks offer mortgage loans for their staff and customers. There were 31 financial institutions offering mortgages to customers in 2017.

How many Kenyans can afford a mortgage?

A 2011 World Bank report estimated that only 11 percent of the urban population can afford a mortgage. Households need to have a comfortable income to cover both the cost of servicing the mortgage as well as meeting the usual household needs.

The average mortgage size has doubled since 2011, standing at about Sh11 million in 2017. The increase is due to a rise in property prices.

To repay a mortgage of Sh11 million over 25 years at an interest rate of 14 percent, one would have to pay Sh132,414 a month. Only three percent of employed Kenyans or 76,804 employees earned more than Sh100,000 a month.

What is the current housing gap?

The housing gap (shortage of houses with access to basic service) in Kenya stands at two million units.

About two-thirds of urban households in Kenya are in informal settlements, higher than Nigeria’s share of 50 percent and South Africa’s 23 percent, both of which are more populous than Kenya.

According to Knight Frank’s wealth report for 2018, Karen estate in Nairobi was highlighted as one of the peak performers in terms of location and infrastructure. A house in the area costs between Sh80 million and Sh110 million, while an acre of land goes for Sh50 million.

How many people are keeping up with their loan repayments?

About one in 11 (nine percent) mortgage accounts failed to pay its dues in 2017, amounting to Sh27.3 billion. This was the highest share since 2011, and accounted for 2,405 cases.

The share of the value of loans in default doubled from six percent in 2015 to 12 percent in 2017.

The average interest rate on mortgages was at its lowest in 2017 since 2012, at 14 percent, due to the introduction of the interest rate cap, which became effective on September 14, 2016. The rates are expected to go up after the High Court declared the capping unconstitutional and suspended it for one year.

The repayment period ranged from five to 25 years in 2017, translating to an average of 12 years.

Who qualifies for a mortgage?

To qualify for a loan, one needs to have a sufficient absolute level of income. This implies that a household should earn enough to cover the cost of a mortgage along with regular household expenses. It is recommended to allocate two in five shillings earned (40 percent of income) to servicing the loan.

Also, the lender expects one to have a regular verifiable income over the lifetime of the loan.

To fully settle a mortgage loan of Sh11 million in the maximum period of 25 years, one would need to pay Sh132,414 every month. With the ideal mortgage payment to income ratio being 40 percent, this implies that one would need to earn about Sh331,035 every month

Who owns a house?

There is a decline in the number of Kenyans who own the houses in which they live. The Kenya Integrated Household Budget Survey 2015/16 indicates that 60 percent of Kenyans own the houses (both permanent and temporary) they live in, a six percentage point drop from 66 percent in 2005. About 44 percent of households live in houses with walls made of either stone with lime/cement, cement blocks, cement finish or bricks and adobe. The remaining share have houses with walls made of either plywood, cane palms, bamboo, iron sheets or wood and mud and cow dung.

Also, a third (35 percent) of households live in a rented house, an 11 percent rise from a quarter (24 percent) in 2005. About one in 20 families owning the house in which they live has either inherited or received it as a gift.

About 40 percent of families live in single-roomed houses.

Nairobi leads in the proportion of residents that pay rent, with 86 percent, followed by Mombasa (82 percent) and Kajiado (60 percent).

Wajir County has the lowest share of residents that pay rent (three percent), followed by Bomet (five percent), Mandera (seven percent) and Vihiga (eight percent).

What is the progress in the affordable housing programme?

More than 262,000 Kenyans have signed up for the government led affordable housing programme but less than 10 percent have made payments to the kitty.

The housing and mortgage data was compiled from Central Bank of Kenya, Kenya National Bureau of Statistics, Boma Yangu website, World Bank and Knight Frank’s wealth report for 2018.