Cost of mortgages set to go up

Interest rates on mortgages could go up if Central Bank of Kenya retains its indicative lending rate at the current rate.

According to mortgage financier, Housing Finance, the upward trend in the Central Bank Base Rate has increased funding costs for lenders and that is feeding through to mortgage products.

“The change in the Central Bank rate is far too frequent and is creating instability in the financial markets for long-term lenders,” Housing Finance, managing director, Mr Frank Ireri says.

CBK has over the past two months reviewed the CBR from 7.5 per cent to 16.5 per cent as it moved to stem weakening of the shilling and contain inflation.

However, the spike is now mounting pressure on lenders, with commercial banks increasing their lending rate to over 30 per cent for unsecured lending.

Long term lenders seem to be running out of options as search for deposits turn to survival mission. Many investors are opting to invest in government securities, which offer higher returns, leaving a financing gap for long-term lenders.

“The mortgage sector is increasingly finding it difficult to access affordable financing,” said Mr Ireri.

The monetary policy committee (MPC) meets on a monthly schedule to decide whether a change in the Central Bank base rate is required and is expected to meet on Thursday to assess the economy’s response to the actions taken by MPC last month and the recent economic developments.

Housing Finance expects the lending market to slow down slightly in the next few months, but is optimistic that the supply of houses in the middle to lower income segment will remain strong.

Turbulence in the interest market has seen the firm shelf plans to go to the capital market to raise additional funds through issuance of a bond issue.

Housing Finance’s highly successful bond issue in September 2010 raised Sh7 billion against a target of Sh5 billion representing a 41 per cent oversubscription.