Paltry 4pc of Kenyans can afford Sh10m mortgage

This is in line with Central Bank of Kenya (CBK) data, which shows that the average home loan has increased to Sh9 million from Sh6.9 million in 2013 and Sh7.5 million in 2014, a jump blamed on expensive homes and upfront fees.

Besides rising home prices, the survey observes that stagnant pay and costly mortgages have locked out a majority of Kenyans from bank-financed housing.

Read: Kenya’s property prices outpace US, UK on high demand

The CBK data shows the average size of a mortgage is Sh9 million with a repayment period of 11 years at an interest rate of 14.9 percent.

This type of loan will attract a monthly instalment of at least Sh140,000, and one would require a gross monthly salary in excess of Sh420,000, given that banks demand that borrowers retain a third of their pay after all deductions.

More than 85 percent of Kenyans earn less than Sh100,000 per month, official data shows.

“High interest rates, strict eligibility criteria, and low income levels push most households to rely on short-term, high-interest personal loans or informal financing, which are not ideal for long-term housing projects,” the report read in part.

Banks have pointed out the low level of income against the high cost of property purchase as a major impediment to the growth of Kenya’s mortgage market.

The banking sector had issued 30,016 mortgage loans against a formal employment of 3.4 million Kenyans.

Expensive homes, high interest rates and high incidental costs like stamp duty, legal and valuation fees remain the biggest obstacles to the growth of the mortgage sub-sector.

These difficulties have seen a lot of Kenyans opt to buy houses or take sacco loans to buy land and build incrementally.

According to the Zamara survey, 22.7 percent of respondents can afford a Sh3 million house with a favourable 25-year repayment period and at 9.5 percent.

“Under the subsidised Kenya Mortgage Refinance Company (KMRC) rate of 9.5 percent, a household earning Sh100,000 per month can qualify for a mortgage of approximately Sh3.4 million, enough to purchase a typical Affordable Housing Programme unit.”

Zamara highlighted the profile of the pension scheme members, with about half or 47 percent, earning below Sh50,000, 42 percent taking home between Sh50,000 and Sh150,000 and 11 percent getting over Sh150,000.

The report has pointed out that the Affordable Housing Program’s attempt to “solve the price equation, fails the ‘livability test’”.

This is because the affordable housing stock comprises primarily studio, one-bedroom, and two-bedroom units, designed to meet affordability targets rather than family requirements.

“Our survey indicates that most members predominantly in their 30s and 40s aspire to own three- or four-bedroom homes suitable for families with children...This points to a fundamental disconnect between policy intent and market demand,” the report added on family size mismatch.

Three-bedroom houses under the affordable housing project are sold at Sh3 million a unit.

About one in ten (12.2 percent or 17,725) respondents can afford a five million house comfortably without much financial strain.

“[This] represents mid- to upper-income earners capable of servicing larger loans, though at higher financial commitment levels,” the survey read in part.

Only four percent or 6,146 of the sampled Kenyans said they can afford a house loan of more than Sh10 million.

Most of the properties on the market are targeted at the middle class with a recent report noting that there is a shortage of low cost housing.

The Kenya Bankers Association has previously said that this shortage was because developers are inclined more towards renting than selling.

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