The effect of interest rates on the supply of real estate finance in Nairobi County

Abstract

This study investigates the effect of interest rates on the supply of the real estate finance in Nairobi County. It examines the theories for real estate finance. The study adopts secondary data from the financial reports, mortgage market reports and Management reports from HassConsult Ltd and the data readily available in the companies’ websites. The research adopted a descriptive method where the units of study sought to establish the effect of interest rates on the supply of real estate finance in Nairobi County. This method is preferred because it allows for the prudent comparison of the research findings. The study concludes that the interest factor plays a major role in determining the supply of real estate finance but with different weight and direction. This comes into play when the research is done in the short term or the long term. The study found that there was a strong positive relationship between the lending rate and the total sales of real estate in the short term. The implication of the finding is that interest rates have significant impact on the mortgage sales. The study determined the effect of the interest rates on the supply of real estate finance and found out that more people are likely to borrow money when the interest rate is lower as doing so will cost them less than at another time. It was also evident that when the interest rate is higher, borrowing becomes more expensive and slows. Hence there was significant increase in the sales index matching with the drop in the mortgage interest rates. This principle applies to loans that come in the form of mortgages. When interest rates are lower, people are generally more willing to take out a mortgage than when rates are higher. Though higher interest rates typically mean a cooling of demand for real estate, since a purchaser will have a higher payment on the same property, the opposite is happening in the short term. The study recommends that there is need for further research done on all the financial institutions providing mortgage such as Credit unions because their determinants of mortgage interest rates are not the same as those of commercial banks.