Non performing mortgage loans nearly doubles despite growing appetite

August 30, 2017
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Despite the NPLs, the value of mortgage loans in Kenya grew from Sh203 billion in 2015 to Sh219 billion in 2016, a growth of 8.1 percent/FILE

, NAIROBI, Kenya, Aug 30 – The value of non-performing mortgages increased from Sh11.7 billion in 2015 to Sh22 billion in 2016.

The Bank Supervision Annual Report by the Central Bank of Kenya shows that the ratio of non-performing loans to gross mortgage loans was 10 percent, 3 percentage points above the industry’s NPLs to gross loans ratio.

Despite the NPLs, the value of mortgage loans in Kenya grew from Sh203 billion in 2015 to Sh219 billion in 2016, a growth of 8.1 percent.

The number of mortgages in the market dropped marginally from 24,458 in 2015 to 24,085 in the previous year.

“The average mortgage loan size increased from Sh8.3 million in 2015 to Sh9.1 million in 2016 due to increased property prices,” the report quotes the Residential Mortgages Market Survey 2016.

Over 70 percent of the mortgage loans were issued by five financial institutions.

The report states that borrowers have shown increased interest in mortgage loans since the introduction of interest rate capping a year ago, but banks have on the other hand introduced tighter credit standards resulting in fewer mortgages disbursed in relation to applications.

Interest rate capping has, however, brought down average mortgage loan rates from 18.7pc in 2015 to 13.46 pc in 2016.

In the survey, banks listed ability of a client to repay, terms of employment and legitimacy of the property as the main risk factors when assessing mortgage applications.

Others include; credit history, collateral, property location and ease of sale in case of default and whether the property is owner occupier or rental.

The survey identified a low level of income, high incidental costs, access to long term finance and high cost of construction as impediments to the growth of mortgage market.

Financial institutions reckon that provision of basic infrastructure by national and county governments and reduction of stamp duty for first time home owners would spur the growth of the segment.

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