LENDER FACTORS AFFECTING RESIDENTIAL MORTGAGE UPTAKE IN KENYA
Abstract
Purpose of the Study: The study sought to investigate selected factors of mortgage lender institutions that affect residential mortgage uptake in Kenya. The study specifically looked at the effect of lending interest rate levels, non-performing mortgage loan levels, capital levels and asset base levels of Kenyan banks on residential mortgage uptake in Kenya.
Study Methodology: A longitudinal research design for study period 2011 to 2017 was used. The study period was based on the availability of the required data. The study used secondary quantitative cross sectional data from audited financial statements of banks and Central Bank of Kenya. The target population was the 31 commercial banks that offer mortgages as at 31st December 2017. Purposive sampling technique was used to arrive at the sample size of 24 commercial banks based on the availability of the relevant research data. The data in this study was analyzed using STATA software version 16.
Results and Findings: Diagnostic and model specification tests were carried out on the data prior to the regression analysis. Hausman test showed that fixed effects panel regression model was appropriate for analyzing the data. The analysis was done at 5% significance level. Results from the regression analysis showed that banks’ lending interest rates were negatively correlated to and had no significant effect on residential mortgage uptake; non-performing mortgage loans had a significant and positive effect on residential mortgage uptake; bank capital levels had a significant and positive effect on residential mortgage uptake, while bank asset levels had a positive and non-significant effect on residential mortgage uptake.
Conclusion: The study concluded that bank capital levels and non-performing mortgage loan levels have a significant effect on residential mortgage uptake in Kenya.
Recommendations: Recommendations from the findings of the study are that bank capital levels should be encouraged to be at high levels because they have a positive effect on the uptake of mortgages. Given the negative relationship between interest rates and mortgage uptake, interest rates need to be managed at low levels that will encourage uptake of mortgage facilities. The Government of Kenya should consider a mechanism through which low interest rates preferably lower than what mortgagors are getting with commercial banks, will be charged on mortgages advanced under the housing pillar in the Big 4 Agenda.
Keywords: Lending interest rate levels, non-performing mortgage loan levels, capital levels, asset base levels, residential mortgage uptake, Kenya
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