High interest charges bring mortgage business to a standstill

Uncertainty over high interest charges has brought mortgage business to a standstill as customers shy away from loans to service their dream homes.

A spot check at National Bank revealed that interest charged on retail mortgages have been reviewed from 15.45 per cent to 18 per cent with a further review currently underway to determine the final figure to be announced soon with estimations pointing to 21 per cent. Construction mortgages at the bank are up to 21 percent from 17 per cent.

Tough conditions

At Kenya Commercial Bank, interest rates have gone up to 20 per cent from 14.9 per cent with a further stringent condition that an individual should have a net of Sh300,000 as a basic qualification for any mortgage.

A customer at KCB is now required to pay Sh100,000 as monthly premium for a Sh5 million house for a minimum period of ten years. Prior to the revision, the cost was between Sh15,000 and S20,000 less.

At Housing Finance, the interest rates currently average 21 per cent after the review, a trend that is across all the banks.

At Faulu Kenya, mortgage rates now stand at 22 per cent after a review from 16 per cent.

On Friday, the Central Bank sought to inject Sh6 billion into the money markets through reverse repurchase agreements, saying liquidity was skewed in the money market. Traders say the CBK may be seeking to help smaller lenders, who have found it difficult to borrow from larger counterparts after the seizure of a second-tier bank last month. It’s not clear if the CBK action would help contain surging interest rate by banks.

However, analysts say high rates are not expected to ease out soon as a tight Central Bank Monetary Policy aimed at containing inflation and addressing foreign exchange volatility remains in place.

“Banks are reviewing their rates to reflect the tight monetary policy,” said Maurice Odoyo, the managing director of NIC Capital.

“Until CBK is able to ascertain that everything is under control, my take is that the tight monetary policy shall stay.”

A similar stand was shared by a number of industry players who spoke to The Standard some on condition of anonymity.

The current high interest rates are as a result of a decision by the Monetary Policy Committee (MPC) to raise the Central Bank Rate (CBR) — the rate at which it lends to commercial banks — from 10 per cent to 11.5 per cent. CBK also revised the Kenya Bankers’ Reference Rate (KBRR) — a tool that banks use to price their loans to customers — from 8.54 per cent to 9.87 per cent.

Calls are mounting across the board for a review of the tight monetary policy stand as business across the nation begins to feel the pinch of high interest rates. Others hurting include those with personal loans and car loans as the purchasing power of the ordinary Kenyan falls.