Costly bank loans raise monthly income for mortgage to Sh58,600

Residential houses under construction in Nairobi. A recent survey estimates that the country has a shortage of two million houses. Photo/DENISH OCHIENG  Nation Media Group

In Summary

• A survey done by the Centre for Affordable Housing Finance in Africa (CAHF) has found that to afford a house priced at Sh1.13 million, a Kenyan would need to be earning at least Sh58,600, up from Sh40,248 at the beginning of last year.
• The NGO says the main barrier to buying a house in Kenya is the high cost of loans that has been sustained over the past two years.
• Last year’s report that covered the market conditions in 2011 found that a buyer would need to earn a monthly salary of between Sh40,248 ($468) and Sh45,924 ($534) per month to buy a house priced of between Sh1 million and Sh2 million.

By JOHN GACHIRI
More by this Author

The minimum monthly income that a Kenyan needs to afford a decent house has risen by more than Sh18,000 to Sh58,600 due to an increase in the cost of loans over the past one year.

A survey done by the Centre for Affordable Housing Finance in Africa (CAHF) has found that to afford a house priced at Sh1.13 million, a Kenyan would need to be earning at least Sh58,600, up from Sh40,248 at the beginning of last year.

CAHF is a non-governmental organisation based in South Africa.

“High interest rates undermine affordability even for modestly priced housing. A $13,000 (Sh1.13 million) house would still require a monthly income of $677 (Sh58,600), with a 10 per cent deposit on a 20-year mortgage at 19 per cent,” says CAHF’s Africa Housing Finance Yearbook 2013.

The NGO says the main barrier to buying a house in Kenya is the high cost of loans that has been sustained over the past two years.

Interest rates rapidly rose in December 2011 when the Central Bank of Kenya (CBK) increased the base rate to 18 per cent from six per cent to check the rapidly rising rate of inflation and stabilise the shilling.

Before then, the average mortgage lending rate was 14 per cent.

Last year’s report that covered the market conditions in 2011 found that a buyer would need to earn a monthly salary of between Sh40,248 ($468) and Sh45,924 ($534) per month to buy a house priced of between Sh1 million and Sh2 million.

READ: High mortgage prices lock out 90pc of buyers

Despite CBK bringing down the base rate to 8.5 per cent, banks have been slow to reduce their lending rates citing the high cost of deposits that came after CBK’s action.



CAHF also found that there was a low supply of well-built houses despite the huge demand.

“Kenya’s rapid urbanisation, demographics and the undersupply of housing point to a consistent need for middle and low-cost housing in the range of between $10,000 and $40,000 where demand is highest,” said the report.

Estimates are that the country has a shortage of two million houses, which is estimated to be rising by 150,000 units every year.

Most real estate developers have been focusing on the high-end of the market, but lenders are also warming up to the lower end where prices are about Sh1 million per unit.

The French Development Agency recently signed a $5 million (Sh433 million) long-term loan with Pan African mortgager Shelter Afrique for lending to commercial banks targeting low income borrowers.

The loan is expected to benefit 4,000 families.