Environmental Challenges and the Strategic Responses in the Mortgage Industry in Kenya

Abstract

The population of this study was all the mortgage companies and Building Societies in Kenya. The questionnaire was administered to the Chief Executive Officer of the mortgage institution. The objectives of the study were, to determine the environmental challenges in the mortgage industry and to identify how mortgage firms were responding to these challenges in Kenya. The motivation behind the research was to establish the effect of the operating environment on the mortgage industry. The findings among other things show that, of the four respondents, 50% were mortgage finance companies and 50% building societies. The mortgage companies controlled more than 50% of the mortgage business by December 2001. This study found out that economic factors affect mortgage financing to a very high extent. Other costs other than interest cost on mortgage affect mortgage in Kenya to high extent. Most of the mortgage firms were financing housing in the urban centres. Interest rates are a major cost in mortgage. Mortgage insurance is an important part of mortgage process. Securitization of debt, secondary mortgage markets and insurance on default are some of long term strategies pursued by mortgage firms in developed economies and established mortgage industries. The study concludes that stabilizing the housing finance is the government's responsibility. Cost of property is increasing at an increasing rate. The reduction of interest rates by lenders has increased demand for houses while the rate of construction for new houses is lower. The players need to consider giving property developers negotiated interest rates which should translate to reduced costs of construction and hence more houses. In developed economies, the role of insurance goes beyond the life insurance and property insurance. Insurance plays a key role in residential mortgage financing by securitization of mortgage by guaranteeing payment in case of default. Although the players feel that time is not ripe for secondary mortgage market, there is need for the government to lay down a framework for introduction of simple form of secondary mortgage market for residential properties with government-sponsored enterprises. A sustainable mortgage financing system, which is broadly accessible and serves the needs of the consumers at market prices should be put in place in Kenyan Mortgage sector