Expert’s view on how to lower mortgage costs

Kenya should find ways of bringing down the cost of financing so that mortgages become more affordable, possibly close to rental rates. This will boost the affordable housing agenda, according to RE/MAX Kenya CEO James Muratha. He notes that the cost of financing is quite high, which makes affordability of homes a big issue.

For example, the monthly repayment on a 20-year Ksh5 million mortgage is Ksh55,000. Banks lend up to 30 percent of one’s salary or income, which means for one to qualify, they would need to be earning at least Ksh165,000. This is out of reach for most Kenyans, as only about two percent of the population earn more than Ksh100,000 a month.

A Ksh8 million mortgage will have a monthly repayment of Ksh94,000, which means one has to have an income of Ksh281,000 to qualify. This is beyond the reach of most Kenyans.

Mr Muratha also urges the Government to establish a guarantee fund for banks to support structured lending, specifically to the housing sector.

He points out that private developers are disadvantaged as they compete with the government for finance from banks.

Mr Muratha says: “For example, the government has just issued a 20-year, tax-free and risk-free infrastructure bond with a yield of approximately 13 percent. The pertinent question is: Why should the banks lend to Mr Muratha at 13 percent as compared to lending the government at the same rate? You do not have to be a clever banker to make that decision. This makes it harder for banks to lend to developers to build houses or to people to buy property.”.

Mr Muratha argues that flexible payment plans for mortgages will also help more people to own homes. Sellers and buyers design a staggered payment
mode. Banks could also design structured financing that is tailor-made to suit a certain market niche and still make the qualification rates easier at preferential charges, and continue banking on a retail market that would
not compromise revenues.

Further, Mr Muratha proposes that the Government should streamline the lands registry for a smooth and seamless process. Hopefully, he says, the ongoing digitalisation of the land registries will help sort out the search and file process.

Property ownership is a challenge for most people. The process is generally not easy and quite complicated for buyers. There are often hidden costs, which make the whole exercise very expensive.

The other challenge is the conveyancing process. It is rare seamless event and often frustrating, hence many people stay away. There are delays
the lands registry with searches, missing files, and unforeseen charges to get things done, among other challenges.

For mortgage buyers, the process is also a challenge, as the file moves from one department to another. This has its own delays due to bureaucracies.

The cost of land is high too. In fact, it is often what makes the prices of houses unaffordable to many Kenyans. The closing costs, which include stamp duty charges, legal fees, registration fees and other incidentals, a
not low either.

-Daily Nation