Kenya Mortgage Refinance Company (KMRC), a public-private partnership aimed at improving mortgage Kenya’s landscape, plays a vital role in providing affordable housing by enhancing access to long-term funds for primary mortgage lenders at competitive interest rates. Incorporated in 2018 and beginning operations in 2020, KMRC aims to address the escalating demand for housing fuelled by a rising population and urbanization, promising a brighter future for home ownership in Kenya.
The recent mortgage limit hike by KMRC marks a significant shift, poised to stimulate the mortgage Kenya market further by making home ownership more attainable for Kenyans. This move aligns with the government’s ambitious housing targets and could reshape mortgage rates, influence loan repayment terms, and encourage mortgage calculator usage among prospective homeowners, fostering a more robust mortgage environment.
Background of KMRC’s Involvement in Affordable Housing
Established in 2018, the Kenya Mortgage Refinance Company (KMRC) serves as a pivotal entity in Kenya’s affordable housing sector. Its inception was driven by the need to provide long-term funds to primary mortgage lenders (PMLs), including banks, microfinance institutions, and Savings and Credit Cooperative Organizations (SACCOs). KMRC’s foundational goal is to enhance the availability and affordability of mortgage loans, particularly for low-income earners who constitute over 70% of the working population, making less than Sh150,000 per month.
Strategic Funding and Impact
- Capital Injection: KMRC has accessed a cumulative Kes 6.5 billion from international credit lines through the National Treasury, sourced from the World Bank and the African Development Bank. This funding supports its mission to diversify mortgage finance sources and reduce interest rates.
- Loan Disbursement and Reach: Since its operations commenced, KMRC has disbursed Kes 9.6 billion to lenders, positively impacting over 10,088 families. This initiative has significantly increased finance accessibility by integrating SACCOs as credible lenders.
Enhancing Mortgage Accessibility
- Product Offerings: KMRC has developed two main products: Mortgage Refinancing and KMRC Backed Home Loan, tailored to increase access to affordable mortgage loans.
- Innovative Financing Solutions: Collaborating with the Retirement Benefits Authority, KMRC enables individuals to utilize a portion of their pension funds as a deposit for home purchases, supplemented by KMRC’s affordable financing options.
- Support for Private Developers: By ensuring the uptake of refinanced loans and linking developers with participating banks and SACCOs, KMRC promotes the visibility and feasibility of affordable housing finance.
KMRC’s comprehensive approach not only addresses the immediate financial barriers but also fosters a sustainable ecosystem for affordable housing in Kenya. Through its strategic interventions and products, KMRC is set to redefine the landscape of mortgage financing, making the dream of home ownership a more attainable reality for many Kenyans.
Details of the Mortgage Limit Increase
Revised Mortgage Limits and Eligibility
KMRC has officially raised the mortgage limit from Ksh 8 million to Ksh 10.5 million, a strategic move designed to make housing more accessible to a broader range of Kenyans. This adjustment is particularly significant as it encompasses the entire country, with previous figures standing at Ksh 6 million for areas outside the Nairobi Metropolitan. Additionally, the income threshold for eligibility has been increased from Ksh 150,000 to Ksh 200,000 monthly, expanding the potential borrower base.
Interest Rates and Financial Instruments
In line with these changes, KMRC maintains a commitment to an average mortgage interest rate of 9.5%. This rate is competitive, aiming to balance affordability for borrowers while ensuring sustainability of the financing model. Furthermore, the introduction of a Medium-Term Note (MTN) program is set to raise Kes 10.5 billion over four years. The first tranche of this program, valued at Kes 1.4 billion, offers an interest rate of 12.5% per annum, payable semi-annually, with a minimum investment threshold of Kes 100,000.
Impact on Loan to Value Ratios and Market Expansion
The adjustments extend to the Loan to Value (LTV) ratio, which KMRC has increased to 105% from the previous 90%. This shift signifies that prospective homeowners may no longer need to pay the standard 10% deposit previously required, thereby lowering the initial financial barrier to home ownership. This policy adjustment is expected to stimulate further growth in the mortgage sector, which remains a critical component of Kenya’s economic framework, especially considering the low mortgage to GDP ratio of 1.9%.
Factors Leading to the Increase
Economic and Policy Drivers
- Government Initiatives: The Kenyan government’s Bottom-up Economic Transformation Agenda (BETA) is a pivotal force behind the mortgage limit increase. This agenda sets ambitious targets, including the delivery of 250,000 affordable housing units annually and boosting the share of affordable housing from 2% to 50% by 2027. These targets are part of a broader strategy to address the acute housing shortage and improve living conditions for millions of Kenyans.
- Market Dynamics: Influences from the construction industry and property market prices have necessitated adjustments in mortgage limits. As construction costs rise and property values increase, higher mortgage limits ensure that home financing remains within reach for a larger segment of the population. This adjustment is also reflective of the economic realities that many prospective homeowners face in urban and rapidly urbanizing areas.
- Financial Instruments and Investments: KMRC’s exploration of the green bond market represents a strategic move to secure additional funds necessary for financing its loans. This initiative not only aligns with global sustainability goals but also provides KMRC with the capital needed to expand its lending capabilities. Additionally, the mortgage limits are strategically pegged to foreign currency rates, providing stability and predictability in loan repayment terms amidst fluctuating economic conditions.
Potential Impacts and Future Projections
Increased Homeownership Opportunities
The recent increase in the mortgage limit by KMRC is expected to significantly widen homeownership opportunities, particularly for middle-income earners in Kenya. This demographic, which previously found it challenging to secure financing for home purchases, may now have better access due to more accommodating financial thresholds and enhanced loan to value ratios.
Economic Growth through Housing Sector Boost
The infusion of higher capital limits into the mortgage sector could catalyse substantial economic growth. As primary mortgage lenders gain access to more funds, the construction industry may see a surge in activity, driven by increased demand for housing. This boost is likely to ripple across related sectors including manufacturing and services, contributing to overall economic expansion.
Challenges and Regulatory Needs
With the expansion of mortgage limits, primary mortgage lenders may face new challenges in risk management. Adapting to higher loan amounts will necessitate improved assessment strategies for borrower creditworthiness to mitigate potential defaults. Furthermore, KMRC along with the Central Bank of Kenya will need to intensify monitoring and regulatory measures to prevent market overheating and ensure financial stability within the sector.
