The uptake of home loans in Kenya dropped for the first time in a decade after banks tightened access to mortgage financing. This is after the Central Bank Of Kenya (CBK) introduced a policy last year aimed at capping interest rates.
The CBK says in a newly-released report that the number of active mortgage accounts fell to 24,085 at the end of December. This is a major reversal from where it stood in the previous period when the number of loan accounts grew at a compounded annual rate of 12.9% between 2006 and 2015.
The CBK says the lenders reacted to the rate capping law by tightening the credit standards for such loans. Consequently, short- term credit loans gained favor over longer term loans. As a result banks refused to lend to mortgage borrowers even as demand rose. This is even more so as more Kenyans sought to take advantage of the lower lending rates to buy homes.
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According to an annual report by CBK, perceived affordability has caused increased demand for mortgage loans. This is so after the introduction of interest capping law in September 2016.
Credit viability
To combat this, commercial banks have introduced tighter credit standard. This means the actual mortgage disbursements have been lower than the increased demand. The trend makes for gloomy outlook for the mortgage sector. Previously, high cost of credit was cited as a major obstacle to the growth of the mortgage market.
Last year, however, the signing of the rate cap law resulted in the average interest rate charged on mortgages falling to 13.46%, from 18.7% in 2015. Borrowers were also keen on a fixed rate mortgage following the rate law as they looked to lock in the benefit it offers, should there be a revision down the road.
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