Mortgage a bitter pill

• Home loans are unpopular, with most people preferring to build their houses in phases using their own cash. The only way lenders can hope to change this attitude is by making their money affordable

About a month ago, there was a bit of comic relief when two leading mortgage lenders — S&L and Housing Finance — engaged in a brief back-and-forth over who was the country’s market leaders.

Research has been showing that Kenya Commercial Bank’s S&L is the leader, followed closely by Housing Finance, in a market of 33 players, but where 71 per cent of the lending is by five institutions.

However, a Central Bank of Kenya survey released over a month ago indicated that by December 2011, Housing Finance had leapt ahead to take the lead. S&L was not amused and responded by saying that the survey used wrong data. Housing Finance, on the other hand, said their innovative strategies were finally paying off.

The survey revealed another market “coup”: it ranked high interest rates as the biggest impediment to the growth of mortgage portfolios in Kenya, followed by lack of access to long-term funds.

When the CBK first conducted a similar survey in 2010, lack of access to long-term funds was identified as the major obstacle to mortgage market development, with high interest rates being rated fourth.

Other obstacles noted in the latest survey (released over a month ago) were low levels of income among potential borrowers, high credit risk (mainly attributed to absence of credit history of borrowers), lack of housing supply, cost and time of foreclosing on a property, and difficulties in registering property.

Many borrowers were said to be adopting a wait-and-see attitude pending the outcome of the forthcoming General Election, as well as a fall in lending rates.

Interestingly, lenders were generally optimistic that the mortgage market growth momentum would continue, thanks to the rising middle income class, increased financial literacy, and the devolved government.

And their optimism may not be misplaced; the CBK survey showed that the mortgage market is growing with the value of mortgage loan assets outstanding, having increased from Sh61.4 billion in May 2010 to Sh91.2 billion in December 2011, representing a growth of Sh29.8 billion or 48.5 per cent.

There were also 16,135 mortgage loans in the market by December 2011, up from 15,049 in May 2010.

The scramble for Kenya’s mortgage top perch and the general enthusiasm among lending institutions may be good developments, but they often obfuscate the general public feeling about mortgages.

Early last week, a fellow journalist told me to forget about mortgages “if you really want to own a house. Those things you call mortgages are not for me,” he said dismissively.

“With all the saccos around, I would rather build at my own pace, one wall after another.”

Incremental building

He was, of course, talking about incremental building, where people buy a piece of land, then build on it in phases as they get the money.

This method is being aided by Kenya’s emerging housing microfinance sector, thanks to a number of pioneering saccos and non-governmental organisations using it to provide housing finance for the poor.

Later in the week, someone who owns a house in one of Nairobi’s upper middle class estates told me that she has never considered buying a house through mortgage.

She bought her house from National Housing in cash in 2005 while working abroad. In 2000, while still in the country, she bought her first house at the Coast in cash, too.