The Kenya Mortgage Refinancing Company (KMRC) has encountered a notable setback with a substantial decline in the adoption of affordable home loans.
From January to September, there was a 69.0% decrease in the number of mortgages refinanced by KMRC, plummeting to 606 from the 1,957 mortgages recorded in the corresponding period last year.
This decline in the uptake of affordable home loans serves as a significant indicator of the broader economic challenges affecting the real estate market, particularly in the affordable housing segment.
The reduction in mortgage refinancing is partly ascribed to diminishing household incomes amidst a high inflation environment. Many households are postponing their plans for homeownership due to stagnant incomes and escalating living costs. The situation is exacerbated by the Central Bank of Kenya’s monetary policy actions, which include raising the benchmark interest rates from 7.0% to 10.5% between May 2022 and August 2023, aiming to control inflation.
The escalating interest rates have prompted commercial banks to elevate the cost of home loans to over 18.0%, rendering borrowing more expensive for potential homeowners. Despite the anticipation that KMRC-backed loans, offered at fixed single-digit rates, would become more attractive in this high-interest environment, the actual demand has not met these expectations.
KMRC, a collaborative venture between the National Treasury and private lenders, extends funds to banks and saccos for lending to homebuyers at a fixed annual interest rate of 5.0%. However, the increasing interest rates offered by the government for securities have become more appealing to commercial banks and saccos compared to lending for home purchases. Additionally, families are increasingly hesitant to commit to new mortgages due to squeezed earnings.
Between January and September, KMRC disbursed nearly Kshs 2.4 billion to refinance 606 home loans, a substantial decrease compared to the Kshs 5.8 billion allocated last year for 1,957 mortgages. This highlights the challenges confronting the real estate sector, especially in the affordable housing market. As economic conditions continue to impact household earnings and borrowing costs, the growth of the real estate sector, particularly in home ownership, is likely to face ongoing pressures.
