How Kenya is making home ownership possible for low-income households

Rachel Mwangagi is getting ready to move into her dream home in Kenya’s capital, Nairobi, within the first quarter of 2022. It is the culmination of a long and arduous journey for the single parent who works with one of Kenya’s county governments and solely fends for her two children ever since the demise of her husband.

For a long time, a mortgage facility that she would deem affordable had been out of her reach, with short repayment periods and double-digit interest rates locking her out. This changed when she got to know of lending through her savings and credit cooperative society, Stima Sacco, which had been enabled by onward lending courtesy of the Kenya Mortgage Refinance Company, KMRC.

“I joined a page on a social media site and I was going through it, I happened to read about a loan facility whose rates were so good. I decided to go to my sacco branch and inquire about it and the journey began with them assessing how much I earned and which institution I worked with”, Mwangagi says.

Having secured a Ksh. 4.0 million facility whose interest rate is 9.0% and the repayment period is 15 years, Mwangangi considers herself considerably fortunate when she contrasts this with the prevailing market landscape. According to the Central Bank of Kenya, the average mortgage size is Ksh. 8.6 million, the average interest rate charged is 10.9% and the average repayment period is 11.2 years.

“This is the best thing that happened to me since I was born. In this country where do you get a loan at 9.0%? I was speaking to my friend who was telling me I have been given free money. I was very excited because I had earlier just repaid a Ksh 1.5 million loan and it took me quite some time because the rate was too high”, she says.

Mwangangi’s monthly mortgage service cost is Ksh. 48,000, an increase from the Ksh. 35,000 she currently pays in rent. She, however, says she is delighted that KMRC has not only enabled her to own a home but more importantly realize the quality of housing she has always desired; quality she would not have been able to enjoy had she relied on her savings only for this undertaking.

“I had planned of putting up something small using my little savings but when I found that the sacco could facilitate me to get additional cash, I changed the plan. If it were not for KMRC I would not have achieved my dream house. I am grateful that through this facility I am able to put up the building I have always dreamt of, my house is very beautiful”, she says.

KMRC was granted a license to conduct mortgage refinance business in Kenya on September 3, 2020. The company is designed to push mortgage down-market to underserved segments of the market through single digit and longer tenured facilities. Beyond serving as a game changer for persons such as Mwangangi, it is also yielding a positive impact on the supply of long-term finance from financial cooperatives.

“Prior to KMRC we did make attempts into the mortgage lending business but only through scheme loans. This meant that we were merely administering mortgage schemes on behalf of other companies. KMRC has given us the capability to offer mortgage facilities just like any other financial institution. So far, we’ve received Ksh 69 Million from KMRC out of which we’ve lent out more than 50.0 per cent”, says Stima Sacco Chief Executive Officer, Dr. Hassan Gamaliel.

Gamaliel says Stima Sacco’s demand pipeline is steadily growing and there will be need to tap into more financing from KMRC as more citizens reach for affordable financing.

“KMRC is enabling us for the first time to lend our own money through a 20 to 25-year facility. We would never have been able to do this; our micro-mortgage product would have been able to go only up to 12 years. What this has meant in terms of affordability is what we are really into”, Gamaliel says.

The value of outstanding mortgages in Kenya closed 2020 at Ksh. 232.7 billion, this was a 2.1% decline compared to the close of 2019. The number of mortgages in the market closed 2020 at 26,971, down 3.7% compared to 2019. With primary mortgage lenders witnessing a rise in the pipeline of applications for affordable financing, KMRC is helping to recast the mortgage landscape in Kenya to be more inclusive.

KMRC has been supported since inception by the World Bank Group, which provided technical assistance and financing to the Government of Kenya to design and operationalize it. IFC invested equity in KMRC alongside eight Commercial Banks, one Microfinance Bank, eleven SACCOs, Shelter Afrique and the Government of Kenya.

Kenyan youth can now own homes through a new affordable housing scheme

Faith Birgen, an assistant sales manager with an agricultural organization based in Eldoret Kenya, had for long been struggling to ramp up her savings, hoping to realize her target of being a homeowner by the time she was 30 years. She was bothered by the fact that the Ksh. 40,000 (USD $353) she paid in monthly rent (Ksh. 480,000/USD $4242 per annum) would never translate into an asset she would own eventually.

Still, she grappled with the inaccessibility of mortgage facilities in the market with double digit interest rates and short tenures. Today Birgen is 29 and has moved into her own house purchased at a cost of Ksh. 5.4 million (USD $47,724) courtesy of the Kenya Mortgage Refinance Company (KMRC) enabled mortgage.

“I was looking for a mortgage plan then I visited a credit officer at my sacco who proposed two mortgage plans, one was the sacco’s stand alone and another was the KMRC-backed through my sacco. I opted for the KMRC-backed mortgage because it was quite friendly in terms of the interest rate. I have borrowed Ksh. 3.0 million (USD $26,513) from my sacco as supported by the KMRC facility”, says Birgen.

Birgen is paying about Ksh. 74,000 (USD $654) monthly towards servicing her mortgage priced at 9.0 per cent with a 48-month repayment period. Had she borrowed the same amount with the same repayment period but priced at the prevailing 13.5 per cent market rate, she would be paying about Ksh. 81,000 (USD $715) in month servicing. Birgen says the saving realized through the KMRC-supported mortgage facility has provided her with a financial cushion, particularly following the COVID-19 induced economic downturn which has adversely affected the business environment.

“Instead of paying my monthly rent which at the end of it the house will not be your asset, KMRC has enabled me to invest now in an asset. The amount that I pay monthly is quite friendly and my living standard has not changed. I am now able to manage my finances better”, she says.

Kenya has made great strides in formal financial inclusion. According to the Central Bank of Kenya and the Kenya National Bureau of Statistics, the rate of formal financial inclusion stands at 82.9 per cent in the country. Amongst the youth, however, a lot remains to be done with 23.0 per cent of persons aged between 18 and 25 years being excluded from formal financial services. Affordability remains one of the key impediments to widening the accessibility of formal financial services to the youth. Birgen argues that interventions such as the KMRC enabled mortgages promise to change this narrative for the better.

“I was able to follow through the process quite easily. It took me two and a half months. I would advise young people out there to consider the KMRC enabled mortgage facility from their Sacco”, Birgen says.

The affordable housing program is helping youth such as Faith fulfil their home ownership dream which seemed unattainable in the past. With support from the World Bank Group (WBG), the KMRC mandate is to provide long term funds to primary mortgage lenders (Banks, Microfinance Banks & Saccos) to increase the availability and affordability of home loans to Kenyans.