Kenya’s mortgage industry has been on the growth path and is now becoming more competitive.
Although on the on a growth path mortgage lending is still really low and as of December 2012 it stood at 3.7% as a percentage of Kenya’s GDP this compared to 70% and 50% in the US and UK respectively. A number of obstacles have been identified as impediments to the growth of mortgage accounts; affordability and insufficient housing supply are among them plus a lack of understanding about mortgage among Kenyans. But still mortgage uptake is on the rise at 30% per year mainly from a growing middle class.
What is a Mortgage
A mortgage is a loan agreement between a home owner or buyer and a financier that gives the conditional right of ownership of the property to the financier as security for the loan, until the interest on the amount is fully paid. The difference between a regular loan and a mortgage is that in a regular loan there is no explicit collateral while in mortgage collateral for the loan is the house itself. If you don’t pay back the lender takes back the house; this is what is referred to as foreclosure.
A better way to look at mortgage is a financier acting as a Landlord. The financier or Mortgage lender will buy the property and then acts as a landlord. The buyer in addition to paying rent contributes monies towards purchasing the property. After making the last payment the property changes hand from the financier to the buyer.
Is a taking up a Mortgage my best option?
Buying vs. renting is a consideration people take in developed countries to buy homes via a mortgage.
Home ownership is cheaper than renting because of low interest rates and longer repayment periods; mortgage rates can be as low as 3% (fixed rate) over a 30 year period. This is done by comparing what mortgage you’ll pay on a property over a property as opposed to the rent over the same period, considering property prices and rent inflation.
Compare the costs of owning and renting; calculating the average rent and for-sale price for certain set of properties in a given area. Let’s take Kilimani for instance a 3 Bedroom apartment in the area will go for about 18 million while a rental for the same property will go for around Ksh.180, 000 per month.
Compare the costs of owning and renting; assume you get the current average mortgage rate of 16.6% on a 20-year variable rate. Using a Mortgage calculator that would translate to around Ksh. 250, 000 per month making just a 38% difference from the rent taking in consideration that rental prices are on the increase with a 12.1 % increase in 2012 alone and property prices increasing by 6.6% in the same year. Also quoted 16.6 % variable rate with the current market trend rates could go down with the growth of the economy and adjustment of the CBK lending rate.
Meaning the mortgage you will be paying will going down as time goes by. In the long run it is better to buy and mortgage the property before the prices and the rental price go up. If you take figures of a different area with a much lower real estate portfolio where rents and property prices will be much lower, you can get a more favorable outlook.
An example will be any upcoming
Gated community in Nairobi outskirts and preferably on an upcoming road reserve. For example, on a Kshs. 2,000,000 mortgage at 15 percent interest, amortized over 20 years, your monthly payment would be Kshs. 26,335.
This can be a good deal as this number can be even lower than the rent.
To manage on the overall construction cost, Prittworld Properties & Mortgages Limited has developed a product called “Nyumba Smart” to assist individual plot owners develop their own dream homes in a plot of their choice. This helps to reduce overall investment price.
Apply for our “Nyumba Smart” product through downloading the “Nyumba Smart Application Form” from our website www.prittworldproperties.co.ke
Mortgage financing options
Over the recent months Kenyans have been introduced to an array of difference home finance promotions.
In fact average mortgage rates fell to 16.6 per cent from 17.7 per cent three months ago. CFC Stanbic led the pack by slashing rates from 17.0 per cent to 13.5 per cent. CBA, National Bank, Housing Finance, Equity all cut their rates by 2%. Standard Chartered Bank introduced the lowest rate with a 45 day offer at 12.9% p.a. However the offer was part of a bundle with other banking products. Foreign currency mortgages are also available at much lower rates (9 to 10%). This can be a good option if you are earning in foreign currency.
Taking a mortgage is one of the biggest financial commitments you’ll ever make. It’s important to know what these risks are and to be financially prepared for them. As much as it is predicted mortgage rates might come down there is still a potential for them to go up. If also happen to take foreign currency mortgage, be sure you are getting a regular income in the currency you are paying in. Otherwise buying foreign currency can be quite expensive in a volatile exchange rate. Also make sure to buy a home you like and one that you’ll feel comfortable in over the long term.
Research on the mortgage financing has been carried out by:
Investors Relations Unit
Prittworld Properties & Mortgages Limited
P.O Box 10405-10100
0721 292 230/0722 721 525