High third party expenses paid by home buyers to lawyers, valuers and government are inhibiting uptake of new mortgages despite the softening house prices.
A Central Bank of Kenya (CBK) survey of lenders for 2018 found that the proportion of potential home buyers that kept off because of high legal fees, valuation and stamp duty had gone up.
The previous year, high cost of housing units and cost of land were cited as key impediments by a majority of potential mortgage takers followed by third party costs.
The CBK data showed the average size of mortgage was valued at Sh8.48 million, with a maturity of 10.6 years. Such a mortgage borrowed from KCB , for instance, will require Sh1.88 million or 22 percent of the mortgage value to be paid to third parties.
The breakdown on the third party costs is made up of Sh1.12 million domestic package cover, Sh339,200 stamp duty, Sh251,586 mortgage protection cover, Sh84,800 legal fees, Sh51,304 excise duty and Sh36,200 valuation fees.
Added to total interest repayment of Sh7.18 million or Sh123,000 per month, it leads to a total repayment of Sh17.54 million. This is more than double the mortgage value.
Kenya Bankers Association data showed the price of houses fell by 2.78 percent — the fastest in five years — in the first quarter of 2019 followed by another 1.72 percent fall in the second quarter.
This sustained the trend that has been seen in the market since the second quarter of last year. The CBK notes that borrowers had limited access to affordable long-term finances to take up mortgage for longer periods given the low level of income. Only 2.7 percent of the 53.83 million deposit accounts were holding at least Sh100,000 as at the end of last year.
The regulator said banks were calling for provision of basic infrastructure services to developers by national and county governments and setting up of a one-stop-shop for all statutory approvals to bring down costs.
The government is counting on Kenya Mortgage Refinance Company to offer affordable long-term funds.