Competition among the few Kenyans who qualify for mortgage is prompting firms to come up with innovative products for the country’s Sh61.4 billion home loan sector.

According to a new report, new entrants in the mortgage business and aggressive marketing have resulted in some newer mortgage products such as fixed rate mortgages that are available for between 10 and 20 years.

Some banks have also recently introduced 100 per cent financing for the full value of a house, says the report, which mentions the other innovation as the introduction of mortgage insurance against the risk of loss of income by a lender.

Titled 2011 Yearbook. Housing Finance in Africa Housing Finance, the study was conducted by South Africa-based Centre for Affordable Housing Finance in Africa and was released last month.

It cites another innovation in Kenya’s mortgage industry as the move by the Retirement Benefits Authority (RBA) in 2009 to allow pension contributors to use up to 60 per cent of their contributions to secure a mortgage.

“This has the potential to leverage assets worth Sh290 billion and increase access for lower-earning people who have accumulated substantial pensions,” it states, noting that the country’s mortgage industry has grown and become competitive.

However, it acknowledges that mortgage lending is still accessible to only a tiny minority of the population, with mortgage lending as a percentage of the GDP standing at 2.6 per cent in 2010.

Quoting the 2010 World Bank research that found that about 11 per cent of Kenyans earn enough to support a mortgage, the study that covered over 20 African countries says that most middle-income earners in Kenya cannot afford an average mortgage necessary to buy an entry-level house.

(The Kenya National Bureau of Statistics defines middle-income households as those whose monthly incomes fall between Sh23,671 and Sh121,030).

According to the Central Bank of Kenya, the average mortgage size in the country is worth Sh6.6 million, thus demanding a monthly repayment of about Sh90,000 for 20 years.

The minimum mortgage available is about Sh500,000.

“This, therefore, highlights the huge problem of affordability in the country,” says the report, adding that of the 45 commercial banks in the country, about 25 have mortgage portfolios.

Another important development in Kenya’s housing finance market is the growth of housing microfinance for the excluded majority.

The report cites Jamii Bora, which has introduced micro mortgages for its members, many of whom are from slums, as an example.

Jamii Bora members have access to mortgages of Sh300,000 for a three-bedroom house and Sh495,000 for a four-bedroom house. The repayment period ranges between five and 20 years.

“Generally, however, these organisations have been unable to scale up their operations because of various factors, including limited funding,” the report notes.

It says a number of pioneering savings and credit organisations and NGOs are using the housing microfinance lending model to provide housing finance for the poor under umbrella organisations like Jamii Bora and the National Cooperative Housing Union.

The study also shines the spotlight on housing supply in the country.

It says that to address the current housing shortage, the annual production of new housing should be five times the number of formal housing units currently being supplied.

Some of the factors undermining the supply of formal housing include the limited availability of serviced plots in urban centres, a problem affecting housing delivery across all income bands, but especially affecting affordability for lower-income developments because of the added cost of servicing plots.

There are also big question marks about the capacity of local governments to ensure quality residential development.

A spate of building collapses as well as tragic fires in 2009 highlighted shortcomings in local government enforcement of building and safety standards, the report adds.

Kenya is currently experiencing a property boom in the home ownership sector.

However, the report says rental housing remains undersupplied, a fact that has had an effect on property prices increasing by 5.8 per cent in 2010.

According to the document, a highly speculative property market and high demand for housing have driven Kenya’s residential property price inflation steadily up over the past eight years.

The study notes: “Even with lower economic growth in the early part of the decade, as well as the aftershocks of the post-election violence, the residential property sector has performed well against these odds.”

According to Hass Consult’s Quarterly Property Index, property prices rose by over 100 per cent nationally and in the capital city Nairobi, and by between 30–50 per cent in other smaller urban areas from 2001.

The price of four- to six-bedroom units grew from just under Sh10 million in 2001 to just over Sh25 million in late 2010.

For one- to three-bedroom units, prices grew from about Sh5 million in 2001 to about Sh8 million in late 2010.

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