An investigation of mortgage financing strategies in residential property investments in Kenya

Abstract

Residential Mortgage Financing in Kenya has been pegged to the performance of the economy. The key determinants or index' of the performance by the mortgage financing companies (MFC) -like Housing Finance Company of Kenya Ltd (HFCK) and Savings ant' Loan Kenya Ltd (S&L)- have been the prevailing interest rates in the markets. The Kenyan economy has been very unstable since the early 1990's and interest rates have been very volatile. Interest rates on mortgages have been as high as 32%. This has resulted to interest payable on loans to amount to the initial principal sum advanced within a few years. For long term borrowing, as is the case of residential mortgages, this is not sustainable nor does it encourage borrowing. Property returns have been on the decline for the last 4 years, which compounds the situation. Lenders have not addressed the relationship between them and the borrowers with a view to tackling the constraints that confront the two parties. Instead they have only addressed their problems of profit maximisation. For the relationship of the lenders and borrowers to be sustainable and to grow, the financing system has to be somewhat equitable to both lenders and borrowers. . The state has played a very minimal role in provision and stabilising of housing financing not withstanding the fact that housing is a basic human right. Following the liberalisation if the economy and banking sector in 1991, interest rates were only technically deregulated, as the relevant Banking Law was not amended. This however resulted to the lenders charging whatever interest they deemed adequate to meet their prof] maximisation goals.