Markets and finance
Banks lowered mortgage terms for a year, raising interest on default
Tuesday, May 23, 2023
Kenyan banks on average cut mortgage terms by more than a year to 10.9 years, but increased interest rates. file image | FOTOSEARCH
Kenyan banks have cut mortgage terms on average by more than a year to 10.9 years, but they have increased interest rates in the past year, giving consumers a double whammy in their dream of owning homes.
a The daily business Analysis of data from the Central Bank of Kenya (CBK) Banking Supervision Report revealed that banks raised interest rates on home loans from 11.3 percent in 2021 to 12.3 percent last year, but lowered the loan maturity from 12 years to 10.9 years.
“The average interest rate charged on mortgages in 2022 was 12.3 percent and ranged between 8.2 percent and 17 percent, compared to an average of 11.3 percent with a range of 7.1 percent to 15 percent in 2021,” the Central Bank of Kuwait said. .
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Banks raised interest rates on home loans in line with the main bank’s decision to raise basis points, adding pressure on potential homeowners.
“The average loan maturity was 10.9 years with a minimum of 5 years and a maximum of 18 years in 2022, compared to an average loan maturity of 12 years with a minimum of 5 years and a maximum of 20 years in 2021.”
The double whammy for consumers coincided with a rise in the number of non-performing mortgages in the banking sector, which rose by the largest margin in five years to Sh37.8 billion, resulting in a jump of 33.6 per cent compared to Sh28.3 billion in 2017. The previous year.
This points to the deep struggles of Kenyans in a deteriorating economic environment.
Data from the Central Bank of Kuwait showed that KCB, the largest mortgage lender by market share, had announced the largest increase in bad home loans, reaching Sh14.6 billion in 2022.
This accounted for 50.6 per cent of total non-performing loans (NPLs) in top-tier banks of Sh8.9 billion in 2021.
Bad loans from nine large banks, including KCB, Absa and other listed lenders, accounted for 76.3 percent of total non-performing loans in 2022 from 65.8 percent in 2021.
Churchill Ogoto, an economist at IC Group, said lenders are likely to adjust mortgage lending terms to pre-pandemic levels after issuing a set of deferral measures to customers.
“Banks are to some extent bringing their mortgage books back to pre-Covid levels, because during the pandemic there were measures in place to protect Kenyans from high mortgage rates,” Ogoto said.
“Over the past year, there has been an increase of over 175 basis points from the Central Bank of Kuwait and whatever interest rate the bank charges its customers is measured against the interest rate at the Central Bank of Kuwait, so with the increase in September and November, that led to the upward revision. To reflect the main bank.
Ogotu says Kenyans should expect higher rates and prepare for higher rates on the back of higher rates this year.
“Given that we have seen a series of other interest rate hikes so far in the year, we should also expect average interest rates to rise as well in 2023.”
Michael Odondo, a research analyst at Standard Investment Bank, agrees with Ogoto that the rate hike was a result of the Kuwait Central Bank rate.
“The higher interest rates are due to increases in the market from the Central Bank of Kuwait raising the benchmark, hence the rates are on the higher end of the spectrum,” Mr. Odondo said.
He adds that manufacturing, real estate and trade are the sectors that contribute to the rise in non-performing loans because they depend on extensive credit.
On March 18, 2020, the Central Bank of Kuwait announced emergency measures to protect borrowers from the negative economic impacts of the pandemic.
According to the Central Bank of Kuwait, banks had to offer borrowers relief on their loans based on their circumstances arising from the pandemic, extend their loans for up to one year and cover all costs related to extending and restructuring the facilities.
The Kenyan mortgage market took a hit after financial institutions began announcing new risk-based interest rate pricing formulas, making loans more expensive and driving up their intended market rates.
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Kenyans surveyed by the main bank said barriers to buying a mortgage were low income levels (31 per cent) and the high cost of the property (23 per cent).
Others cited limited access to affordable long-term financing (18 percent) and difficulties with title deeds at 16 percent.
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