Factors influencing of bank policy on purchase rate of home mortgage product: a case of Barclays bank of Kenya

Abstract

All over the world, how mortgages are financed in a cost efficient way has increasingly concerned banking regulators and policymakers as mortgage costs have played a very important role in improving a national economy, quality of living and in particular housing affordability. Home mortgage product purchasing is closely related to the banking system and its main activity, lending. In addition, the housing market has specific institutional features whereas state intervention is crucial, interrelated with social and economic policy, which radically affects people’s decision. In Kenya, the demand for housing is immense and driven by a growing population and urbanization. However, statistics from WB, indicates that there is low purchasing rate of mortgage products despite Kenyan mortgage market has the potential to grow to Sh800 billion, which is about nine times the current size. The objective of this study was to investigate influence of bank policy on purchase rate of home mortgage product in banking industry where the variables are interest rate, lending criteria, price of mortgage product and central bank policy. According to BBK, there are 7 branches in CBD. This study employed stratified sampling technique in coming up with a sample size of 86 from a total population of 104. The study relied mostly on primary data sources where self-administered questionnaire was utilized as source of data. Data was collected purely quantitative. Quantitative data was coded and entered into Statistical Packages for Social Scientists (SPSS Version 17.0) and analyzed using descriptive statistics. The finding was presented inform of frequency tables, pie charts and bar charts and explanation will be presented in prose. The study found that there has a gradual increase in interest rate on home mortgage product as shown by 64% of the respondents. Variable interest rate contributes to slow growth in residential mortgage market as shown by mean score of 4.01. Banks have a set lending procedure followed when issues mortgage loan to a client as depicted by 69% of interviewed respondents. Banks finance selective mortgage products as shown by 96% of the respondents. central bank advice financial institution on mortgage loan application as indicated by 84% of the respondents. CBK provide some guideline on mortgage products as illustrated by 94% of the respondents. Price of mortgage influence purchase rate of home mortgage as revealed by 96% of the respondents. The study concludes that there is positive relation between interest rate and purchase rate of home mortgage product. It was clear from the study that banks impose interest rate on mortgage product and there is gradual increase in interest rate. Banks lend mortgage loan for the purchase of land for development and existing buildings; they finance construction projects. Looking forward toward the realization of the economic pillar of Kenya’s Vision 2030 demands that the financial institution should focus on making high profits in order to eliminate social problems facing Kenyan citizens today, through control emerging and endemic financial problems. The study recommended that banks should consider their lending criteria. The lending institution need to consider the personal circumstances and earning capacity of the prospective borrowers in order to calculate the maximum amount to be lent over an agreed period. The lending institution need to consider the personal circumstances and earning capacity of the prospective borrowers in order to calculate the maximum amount to be lent over an agreed period.