With the increasing property prices in Kenya, it is becoming increasingly difficult to finance a home from cash. And thats where mortgages come in. Getting the keys to your dream home is within reach, and we’re here to help you every step of the way.
It is important to understand the process so that you can easily navigate the mortgage market and secure the ideal loan for your needs.
In this blog, we’re going to explore everything you need to know about mortgages in Kenya. From understanding the basics of mortgage loans to finding the best deals and calculating those tricky interest rates, consider this your ultimate guide to navigating the path to homeownership.
1) Process of obtaining a mortgage in Kenya
In Kenya, mortgages enable you to purchase a home without having to pay the entire purchase price upfront. Instead, you secure a loan from a lender, typically a bank or a financial institution, to cover the cost of the property. Here’s a basic process of getting a mortgage in Kenya.
Identifying a property
Before applying for a mortgage, you must first identify a property that meets your needs and preferences. This involves exploring various neighborhood’s, considering factors such as proximity to amenities, schools, transportation, and other personal preferences.
Once you’ve found a property that you’re interested in purchasing, you can proceed with the mortgage application process.
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Due Diligence
Before finalizing the purchase of the property, it’s essential to conduct due diligence to ensure that the property is free from any legal or financial encumbrances. This may involve reviewing property documents, such as the title deed, land lease agreements, and any existing liens or mortgages.
Additionally, you may want to engage the services of a legal professional to help you navigate the legal aspects of the transaction and verify the property’s ownership and legal status.
Key Principles for Real Estate Due Diligence
Application Process
You start by applying for a mortgage with a lender. This involves providing personal and financial information, such as income, employment history, assets, and liabilities.
The lender evaluates your application to assess your creditworthiness and determine the amount you qualify to borrow.
Valuation
As part of the mortgage application process, the lender will require a valuation of the property to determine its market value. This involves hiring a qualified valuer who assesses the property’s condition, size, location, and comparable sales in the area to provide an accurate valuation.
The valuation helps the lender assess the property’s suitability as collateral for the mortgage loan and ensures that the loan amount aligns with the property’s value.
Mortgage Approval
Once your application is approved, the lender extends a loan to you for the agreed-upon amount. This loan is secured by the property you intend to purchase, meaning that if you fail to repay the loan as agreed, the lender has the right to take possession of the property through a process known as foreclosure.
Down Payment
When you secure a mortgage, you may be required to make a down payment, which is a percentage of the property’s purchase price.
In Kenya, the typical down payment ranges from 10% to 30% of the property’s value, although it can vary depending on the lender and the type of mortgage.
Mortgage Repayment
Mortgages in Kenya usually come with fixed or adjustable interest rates and repayment terms ranging from 5 to 25 years. With a fixed-rate mortgage, the interest rate remains constant throughout the loan term, providing you with predictability in your monthly payments.
In contrast, adjustable-rate mortgages have interest rates that may fluctuate over time, potentially affecting your monthly payments.
You’re required to make monthly payments to the lender, which typically consist of principal and interest portions of the loan. Additionally, you may be required to pay property taxes and homeowners insurance as part of your monthly mortgage payment. These payments are calculated based on the loan amount, interest rate, and loan term.
As you make regular mortgage payments, you gradually build equity in your home. Equity represents the portion of the property that you own outright, minus any outstanding loan balance. Over time, as you pay down the principal balance of the loan and the property’s value appreciates, your equity in the home increases.
Ownership Transfer
Once you’ve fully repaid the mortgage loan, you gain full ownership of the property. At this point, the lender releases its lien on the property, and you receive the property title, becoming the sole owner.
Steps of buying property in Kenya
2) Types of Mortgages in Kenya
There are two types of mortgages: fixed mortgages and variable mortgages. Variable or adjustable mortgages, on the other hand, have a variable interest rate that can be adjusted periodically.
Fixed-rate mortgages
With this type of mortgage, your interest rate and monthly payments remain fixed for the lifetime of the loan. If you’re buying a home and want to keep your monthly payments steady, a fixed-rate mortgage is a perfect investment.
Why mortgages are not the best option for first-time home buyers
Adjustable-rate mortgages
This type of mortgage has an interest rate that changes periodically and usually corresponds with the country’s central bank’s lending rate.
One disadvantage of a variable-rate mortgage is that if interest rates rise, your monthly payment will also increase. For this reason, it’s important to get a variable-rate mortgage only if you think interest rates will stay low over the next few years.
Hybrid mortgages
These mortgages offer a mix of a period where the interest rate is fixed, and a period where the interest rate varies.
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3) Types of Mortgage Costs in Kenya
Costs incurred during the application process will vary from bank to bank. These are the most common costs.
- Search fees- Ksh 2,000
- Interest Rate – Ranges around CBR + 4% p.a
- Negotiations Fees – usually around 1.5% of loan amount
- Legal Fees – approximately 1-2%
- Stamp duty on transfer- 2%-4% depending on the location of the property
- Stamp duty on charge
- Statutory payments (land rates, rent and all taxes)
- Property Valuation Cost- 0.75% of value
- Mortgage Protection Insurance (MPI)- This usually covers annual fire & life premium.
- For loans related to properties not completed, here are additional costs- Contractors All Risk Insurance Policy during construction, Stage inspection fees, statutory approvals for architectural and structural drawings and Technical consultants fees.
4) List of banks offering affordable mortgages in Kenya
1) KCB Bank Kenya
KCB Mortgages are available in Kenya Shillings, US Dollars, and GBP enabling every Kenyan to own property in Kenya. KCB bank offers access to up to 105% financing with the KCB Affordable Mortgage Loan.
KCB Bank mortgage
KCB Bank mortgage financing covers the purchase of ready-built houses, construction of residential or commercial properties, purchase of residential plots and construction, and mortgage plus or top-up loans on existing facilities. KCB Bank also finances equity releases.
To access the KCB Affordable Housing Mortgage, visit any KCB branch countrywide. In Nairobi, you can visit the Property Centre located along Aga Khan Walk, Nairobi.
The KCB property tour is also available every quarter to view and sample ideal properties in Nairobi and environs as well as Mombasa.
Diaspora Mortgage
The KCB Diaspora Mortgage, available in Kenya Shillings, US Dollars, and GBP enables you to buy ready built homes, construct residential or commercial properties, purchase residential plots and simultaneously construct.
2) Equity Bank Kenya
Home Loans
This is a loan facility that enables Equity customers to purchase complete house units or construct homes either for residential or commercial purposes.
The loan period is up to 180 months (15 years) and offers up to 100% financing.
Commercial Mortgages
This finances the purchase of 2 or more houses in the same community, 2 or more condos/apartments on the same property, or an entire condo/apartment building. This mortgage offers up to 80% financing depending on the location of the property. Minimum loan amount of KES 4 million.
Equity Release Loans
This loan is available subject to a minimum application amount of KES 3 million
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3) Cooperative Bank of Kenya
Cooperative bank has a good home mortgages, an arm that provides affordable mortgages. From our research, this seemed as the most restrictive and expensive option. Here are the loans provided. The interest rates varied around 20.5% for loans denominated in Kenya shillings and 12% for loans in GBP, EUR, USD.
Single Residential Unit
Cooperative Bank offers mortgage options tailored for single residential units, allowing borrowers to access up to 80% of the property’s value. Notably, the bank provides a unique feature wherein rental income generated from the property can be incorporated into the repayment plan. This flexibility enables borrowers to leverage rental earnings to facilitate mortgage repayments, enhancing affordability and financial sustainability.
Multiple Residential Properties
For investors or individuals seeking financing for multiple residential properties, Cooperative Bank extends loans covering up to 80% of the property’s value.
Similar to single residential units, rental income derived from these properties can also be factored into the repayment structure, contributing to the affordability and viability of the investment.
Plot Purchase
Cooperative Bank provides tailored mortgage solutions for individuals looking to purchase land. Borrowers can access loans ranging from 60% to 70% of the property’s value, enabling them to acquire plots for residential or commercial development purposes.
This option facilitates land acquisition while maintaining manageable financing terms.
15 vs 30-year Mortgage in Kenya: Which is Right For You?
Equity Release
Through equity release options, Cooperative Bank allows borrowers to unlock the value of their property. Borrowers can access a maximum of 80% of their property’s appraised value, providing them with liquidity to meet various financial needs, such as home improvements, education expenses, or investment opportunities. Equity release offers homeowners a flexible financing solution based on their property’s equity.
Construction Projects
Cooperative Bank supports borrowers undertaking construction projects by offering financing of up to 80% of the construction costs. Whether building a new home or undertaking renovations, borrowers can access funding to cover a significant portion of the construction expenses. This comprehensive support throughout the building process ensures that borrowers have the financial resources needed to bring their construction projects to fruition.
4) Standard Chartered Bank Kenya
Equity Release Mortgages
Standard Chartered Kenya provides equity release options, enabling homeowners to unlock the value of their property. Borrowers can access funds up to a certain percentage of their property’s appraised value, providing liquidity for various financial needs while retaining ownership of their home.
Top-Up Mortgages
Borrowers with existing mortgages from Standard Chartered Kenya can benefit from top-up options, allowing them to access additional funds beyond their original loan amount. This option is suitable for individuals looking to finance home improvements, education expenses, or other financial needs without the hassle of applying for a new mortgage.
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Construction Mortgages
Standard Chartered Kenya offers financing solutions tailored for construction projects. Borrowers undertaking new construction or renovations can access funds of up to a certain percentage of the construction costs, enabling them to complete their projects efficiently and affordably.
Mortgage Transfer from Other Banks:
Homeowners with existing mortgages from other banks can transfer their mortgage to Standard Chartered Kenya. This option allows borrowers to take advantage of competitive interest rates, favorable terms, and personalized service offered by Standard Chartered, providing greater flexibility and potential cost savings over the loan term.
Non Resident mortgages in Kenya
Standard Chartered offers mortgages to non-resident Kenyans looking to buy property as an investment or a place to stay when they return home. Home buyers can take up to KES 100 million loan with up to 20 years repayment period.
5) Absa Bank Kenya ( Former Barclays Bank Kenya)
Absa bank provides 4 different types of mortgages.
Absa Mortgage loan
Ith this loan, you can buy the home of your dreams and move in without a hassle. Currently, Absa is offering affordable housing financing up to KES 8 million at 9.5% interest p.a. (fixed rate). With this option, you can borrow up to 90% of the property value with repayment of up to 25 years . alternatively, you can borrow up to 80% on a business home loan with repayment of up to 20 years.
Re-mortgage
If you already have a mortgage loan you can transfer it to Absa. By transferring your property, you will benefit from a 12.75% to 14% Interest rate on reducing balance and flexible repayment terms.
However, the value of your property must be more than KES2m (Nairobi) and KES1.5m (up country).
Construction loan
This loan allows you to build your home exactly as you want it. Absa will offer you up to 12 disbursements to help you keep track of your building project. To make this possible, bill of quantities (BQs) must be drawn by an independent and qualified quantity surveyor.
This mortgage option allows up to 100% finance if you own the property (subject to value of land) . You will get a maximum 20-year payback period.
You will also get a moratorium period during construction after which repayment starts.
Equity release loan
Absa will use the the value of your property to release funds that you need for emergencies, renovations, projects or any other purpose. You can draw up to 80% of the value of your property in cash.
6) Housing Finance Company of Kenya
Affordable Housing
This solution is designed for customers who want to buy property for their own occupation under our Affordable Housing Proposition. Housing finance has partnered with Kenya Mortgage Refinance Company (KMRC) to make your home ownership easier. The loan is available at an interest rate of 9.5% that can be spread over a repayment period of 20 years.
Home Loan
This solution is designed for customers who want to purchase a residential property for own occupation. You can borrow up to 90% of the purchase price or valuation whichever is lower. The repayment period is up to 20 years.
Equity Release
The equity release solution is ideal for customers who own property and would like to borrow for other needs. You can obtain financing of up to 90% of the property value. The loan repayment can be spread over 20 years for individuals and 10 years for SMEs/ groups.
Construction
The Construction Loan is a facility that allows those who already own a plot to borrow funds to enable them build residential units on the plot. The construction project is then managed by an agreed group of professionals with disbursement handled on an arrear’s basis directly to the contractor.
You can access a maximum loan of up to 90% for owner occupier and 70% for rental or investment units.
Investment Residential
This is a facility taken for property considered as an investment and not intended to be occupied as the primary home of the borrower. It is suitable for the individuals who want to buy another property to join the already existing stable investment. Purchasing that second piece of real estate could be one of the best decisions you ever make.
Loans of up to 85% of selling price for single units and 70% for multiple units
Office Space
This is an affordable way to purchase an office for your business. Lons will be availabled for up to 70% with a repayment period of up to 10 years.
7) National Bank of Kenya
National bank of Kenya offers residential mortgage, residential plot purchase, mortgage top-up, equity release, residential construction mortgage, residential plot and construction mortgages.
Residential Plot Purchase
This helps potential home buyers wanting to acquire a residential plot of up to 5 acres. Take advantage of the extended payment periods designed for your comfort.
Mortgage Top Up
This allow you to take up an additional loan on top of your mortgage. All you need is a solid track record of payment to get more funding to cater to your other needs.
Equity Release
This allows you to bring an asset to the bank and get a loan to meet your financial needs.
Have a dream home in mind you would like to make into reality? Or do you simply need to revamp your house and give it a face lift? Residential Construction Mortgage allows you to obtain a loan product to accommodate your vision and your payment flexibility.
Residential Plot and Construction Mortgage
This facilitates you to acquire a plot of land of up to 5 acres to start on your home construction. You also get the liberty to choose the location for your development.
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Conclusion
So, whether you’re a first-time homebuyer or a seasoned real estate pro, get ready to take your homeownership journey to the next level. With our expert guidance and a little bit of determination, your dream home in Kenya is closer than you think. Let’s get started!
Frequently Asked Questions
- What is a mortgage in Kenya?
A mortgage is a type of loan from a lender that allows you to borrow a certain amount of money to purchase a house, land, build a house or an estate development. It is paid in regular instalments which include the principal and the accrued interest within the agreed period of repayment.
- What is the interest rate for mortgages in Kenya?
The interest rate for mortgages in Kenya varies from lender to lender.
- Which bank has the lowest interest rates in Kenya?
From our research, Barclays bank (Absa has the lowest interest rate when compared with other lenders in Kenya.
- Which bank has the best mortgage rates in Kenya?
From our research, Barclays bank (Absa has the best interest rate when compared with other lenders in Kenya.
- What is mortgage relief in Kenya?
Any person who borrows money from a registered financial institution to purchase a home or to improve a home as long as he/she occupies the home will be entitled to an interest deduction of up to a maximum of KShs 300,000/= (or KES 25,000 per month) per annum of interest paid to the approved and registered financial institutions.
- What types of mortgages are available in Kenya?
In Kenya, there are various types of mortgages, including fixed-rate mortgages, adjustable-rate mortgages, hybrid mortgages, and interest-only mortgages. Each type has its own characteristics, benefits, and risks, so it’s essential to understand the differences before choosing one.
- How do I qualify for a mortgage in Kenya?
To qualify for a mortgage in Kenya, you typically need to meet certain criteria set by the lender. This may include having a stable income, a good credit score, a low debt-to-income ratio, and a sufficient down payment. Lenders may also consider factors such as employment history, assets, and liabilities.
- What is the down payment requirement for a mortgage in Kenya?
The down payment requirement for a mortgage in Kenya varies depending on the lender and the type of mortgage. In general, down payments typically range from 10% to 30% of the property’s purchase price. However, some lenders may offer special programs with lower down payment options for qualifying borrowers.
- How are mortgage interest rates determined in Kenya?
Mortgage interest rates in Kenya are influenced by various factors, including economic conditions, government policies, inflation rates, and the lender’s risk assessment. Fixed-rate mortgages have a constant interest rate throughout the loan term, while adjustable-rate mortgages may have rates that fluctuate over time based on market conditions.
- What is the process for applying for a mortgage in Kenya?
The process for applying for a mortgage in Kenya typically involves the following steps:
- Prequalification: Determine your borrowing capacity and budget.
- Property search: Identify a property and conduct due diligence.
- Mortgage application: Submit your application to the lender, along with required documentation.
- Loan approval: The lender evaluates your application and approves the loan if you meet their criteria.
- Property valuation: The lender assesses the property’s value to determine the loan amount.
- Down payment: Make the required down payment on the property.
- Loan disbursement: The lender disburses the loan amount, and you become the owner of the property.
- Can I refinance my mortgage in Kenya?
Yes, refinancing is an option available to mortgage borrowers in Kenya. Refinancing involves replacing your existing mortgage with a new one, typically to take advantage of lower interest rates, extend the loan term, or change other terms of the loan. However, it’s essential to consider the costs and benefits of refinancing before making a decision.
- What happens if I default on my mortgage payments?
If you default on your mortgage payments in Kenya, the lender may initiate foreclosure proceedings to take possession of the property and sell it to recover the outstanding loan amount.
Foreclosure is a legal process that can have serious consequences, so it’s crucial to communicate with your lender if you’re facing financial difficulties and explore options to avoid foreclosure.
- Is taking a mortgage a good idea?
Yes. It’s a good idea if you plan accordingly. It can help you possess more in a shorter period. We all know how saving money can be challenging. But with a mortgage, you’ll build equity as you pay the loan. That increases your networth within a short span.
- What are the risks of taking mortgages?
An increase in interest rates can drown you financially if you have taken a floating-rate loan. In addition, you will stay in debt for more extended, and you’ll pay a lot of money as interest.
- Can I pay my mortgage early?
Yes, you can pay your mortgage early. For instance, if you pay an extra installment each year, you’ll reduce the interest, overall loan repayment, and repayment term.
- What happens after paying off my mortgage?
Well, you’ll have a higher networth since you’ll be the sole owner of the property. You don’t have to pay more money to the lender.
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