The Effect of Interest Rates on Mortgage Uptake in Financial Institutions in Kenya

Abstract

Financial institutions play the role of provision of credit facilities to both businesses and individuals. Empirical evidence has always shown that access to finance even inform of credit, has a profound effect on access to and affordability of basic, decent commodities. Such credit facilities include, among others, mortgage loan which is influenced by interest rate and other macro and micro economic factors. Despite the intervention of the central bank on the interest rate charged on mortgages by mortgage providers, interest rate has persistently remained high hindering mortgage uptake. The objective of this study was to investigate the effect of interest rates on mortgage uptake in financial institutions in Kenya. This study employed descriptive research design and multiple regressions analysis. The study covered the period between 2004 and 2013 with a sample size of 44 firms offering mortgage financing. Secondary quarterly data was collected from Kenya National Bureau of Statistics and Central Bank of Kenya. The study findings established a coefficient determinant of 95.1%. Money supply, interest rate and inflation were found to significantly affect mortgage uptake while GDP was found to be insignificant. The study concluded that interest rate negatively affects mortgage uptake and an increase in interest rate will lead to a decrease in mortgage uptake. The study therefore recommended that government should intervene to monitor interest rates and maintain it at reasonable levels to enhance mortgage uptake in Kenya.