Determinants of Uptake of Mortgage Financing for home ownership in Kenya

Abstract

Since mortgage financing is a valuable method of funding real estate investment, inadequate housing and the proliferation of slums in cities remain a crucial developmental issue that countries continue to contend with in most developingcountries. However, little is known about what limits home ownership throughthismode of financing in Kenya. This study examined the influence of economic, demographic, social, and technological factors on uptake of mortgage financingfor home ownership, and how government policy affected this relationship. The positivist philosophy with descriptive survey design was adopted. Data collection sheets wereused for collection of secondary data from published sources. Frequencies, means, standard deviations and inferential statistics were calculated from the collecteddata. Upon analysis of data collected, findings showed that economic factors did not haveastatistically significant effect on uptake of mortgage financing for home ownershipinKenya. The demographic factors, social factors and technological factors had a positiveand significant effect on uptake of mortgage financing for home ownership in Kenya. However, results from published secondary data showed that while some economicfactors (GDP and population growth rate) had a significant relationship with uptakeof mortgage financing for home ownership, some (lending rate and inflation rates) didnot. The findings from the regression analysis were that GDP per capita and inflationratehad a statistically significant positive influence on uptake of mortgage financingfor home ownership, while lending interest had insignificant effect on uptake of mortgagefinancing for home ownership; population growth rate had a significant negative effect on uptake of mortgage financing for home ownership. Lastly, government policies hadasignificant moderating effect on the relationship between the four factors (economic, demographic, social and technological) and uptake of mortgage financing for homeownership. It is therefore recommended that mortgage providers finance ownershipof low-income houses which the majority of Kenyans with low incomes can afford. Moreover, the public should formalize their informal incomes as proof of their credit worthiness when they seek mortgages and ability to pay for the mortgage. Further, thestakeholders in the mortgage market including Capital Market Authority, and Nairobi Securities Exchange should develop a secondary mortgage market to improve access. Mortgage liquidity facilities to benefit the entire sector and development of a Mortgagecovered bond systems aimed at institutional investors should indeed be embracedbylarger lenders. This will necessitate an evaluation of pension scheme and insurancecompany investment policies in order to able to match them with housing needs.