FREDRICK ONYANGO| NATION: A view of the Real Estate in Upper market areas of Westlands in Nairobi.

FREDRICK ONYANGO | NATION: A view of the Real Estate in Upper market areas of Westlands in Nairobi. For most people, buying a new home is the most significant investment they make during their productive life.


The latest wave of interest rate hikes has dealt individuals servicing mortgages a severe blow, with the monthly repayment rising to the highest levels in over 10 years despite some stability in home prices this year.

This is the situation as the Monetary Policy Committee meets at Central Bank of Kenya today, which could raise the signal lending rates as the regulatory body strives to tackle the runaway inflation and stabilise the local currency.

Prices of mortgage products, as well as other loans, have since the MPC’s meeting last month climbed to about 25 per cent.

For borrowers, the rate hike means raising their monthly repayments by more than half if they are to repay the home loan within original tenure for a home loan with ten years to its expiry, for instance.

An even worse alternative, and sadly the more tenable for the ordinary borrower, would be extending the repayment period by as much as the original term, highlighting how the volatility in interest rates may be ravaging lives.

Borrowers who took home loans in the last five years when the lending rates dropped below 15 per cent may be bearing the heaviest repayment burden while any rate hike in today’s MPC meeting could worsen the already dire situation.

Caroline Kariuki, the managing director at ‘The Mortgage Company’, a mortgage brokerage firm terms the current situation as difficult for borrowers but points out that there are options that they could pursue like refinancing the outstanding amounts with different providers.

“The latest rate hike means that borrowers may have to pay significantly higher to service their home loans yet their incomes have not been adjusted,” said Ms Kariuki.

“Since it is highly unlikely that one would continue servicing their loans with the same ease, borrowers should consider refinancing their mortgages, perhaps with lenders offering fixed rates,” she added.

Ann Gichangi, the chief executive at Regnum Financial Planners, concurs that the rate rise is certain to affect the ability of people currently servicing home loans because mortgage as a means of financing home acquisition is mostly for people who cannot pay cash.
“Most mortgage borrowers are already strained in servicing their home loans and their incomes may not allow for much flexibility,” says Ms Gichangi, a personal financial consultant.

It may be time for the borrowers to consolidate their debts by selling other assets with less value and reducing the outstanding mortgage loans as much as possible, she added.

“A buyer may also consider selling the home as a last option before they find that the loan’s amount exceeds the value of the property, people now have to be realistic,” Ms Gichangi said.

A home buyer who bought an average home in Nairobi worth Sh7 million in 2006, has been paying about Sh92,000 a month, on the home loan then priced at 15 per cent.

With the latest rate hike, the monthly repayment would shoot to Sh138,600, a steep increase that incomes of most buyers may not support, according to Ms Kariuki, who previously headed the mortgage division at KCB.