Kenya’s mortgage market has shown significant developments and challenges in 2023, according to the Central Bank of Kenya (CBK) Annual Report 2023. As of December 2023, the mortgage loan portfolio in Kenya stood at Kshs 281.5 bn, reflecting a 7.5% increase from the previous year’s Kshs 261.8 bn. This growth is attributed to new mortgage loans issued during the year. The number of mortgage accounts also saw an uptick, rising from 27,786 in December 2022 to 30,015 in December 2023, indicating an 8.0% increase.
The average interest rate on mortgages in 2023 was 14.3%, ranging from 8.7% to 18.6%, an increase from the previous year’s average of 12.3%. This rise aligns with the broader economic trend of increasing interest rates. Notably, 88.4% of mortgage loans had variable interest rates, reflecting a slight increase from 88.3% in 2022. The average loan maturity period extended to 11.7 years, up from 10.9 years in 2022, suggesting banks are offering longer-term mortgage products.
The average mortgage loan size remained stable at Kshs 9.4 mn in both 2022 and 2023. However, the value of non-performing mortgage loans increased from Kshs 37.8 bn in December 2022 to Kshs 40.8 bn in December 2023, with the ratio of non-performing loans to gross mortgage loans rising from 11.4% to 14.4%.
The CBK survey identified several obstacles hindering the growth of the mortgage market. Key challenges include low levels of income, high property purchase costs, and limited access to affordable long-term financing. Additional barriers such as difficulties with property registration, high land costs, and incidental costs like legal fees and stamp duty also impede market growth. These issues contribute to the overall difficulty in expanding the mortgage portfolio in Kenya.
In response to these challenges, various measures have been proposed to bolster the mortgage market. These include:
- Finalizing the digitalization of land registry processes to streamline mortgage documentation.
- Increasing the availability of low-cost housing options.
- Providing basic infrastructure services to developers by national and county governments.
- Simplifying the legal and regulatory framework governing the mortgage sector to enhance transparency and efficiency.
- Implementing affordable housing programs and making affordable long-term funds available through initiatives like the Kenya Mortgage Refinance Company (KMRC).
Financial institutions closely examine several risk factors before approving mortgage loans. These include the repayment capability of the borrower, employment stability for salaried individuals, borrower’s age, credit history, and the value and location of the property. In 2023, 8 institutions received mortgage refinancing from KMRC, up from 5 in 2022, with outstanding facilities amounting to Kshs 18.1 bn.
The mortgage market is expected to remain stable in 2024, supported by government initiatives focusing on affordable housing and the availability of long-term financing from institutions like KMRC. Partnerships between developers and financiers to provide affordable housing projects will likely drive increased demand for mortgages.
Kenya’s mortgage market in 2023 demonstrated resilience amidst economic challenges. While the market has grown, significant obstacles remain. Addressing these challenges through strategic measures and government support will be crucial in ensuring the continued growth and stability of the mortgage sector. The focus on affordable housing and long-term financing solutions will play a pivotal role in shaping the future of the mortgage market in Kenya.
