Mortgages fall short in solving Kenya's housing crisis

The  mortgage model of home ownership is increasingly being viewed as unsuitable for Kenya’s economic structure, with a new report describing it as more of a wealth accumulation strategy than a solution to the country’s housing deficit.

A report by Financial Sector Deepening Kenya notes that although the Kenya Mortgage Refinance Company has made efforts to expand the mortgage market, affordability remains a major challenge.

KMRC, through partnerships with banks and Saccos, extends mortgages at single-digit interest rates lower than mainstream lending rates, which can exceed 20 per cent depending on an individual’s credit score.

However, the report argues that even with these interventions, mortgage financing cannot be relied upon to drive uptake of affordable housing units being developed by the government.

The report, titled Unlocking Construction and Institutional Off-take Financing for Urban Housing, points to a persistent mismatch between house prices and household affordability.

“Mortgage instalment levels continue to exceed what most target households can sustain, and some banks have responded by removing income caps rather than addressing the underlying affordability gap,” the report says.

It recommends a shift towards alternative, market-driven approaches to complement KMRC’s model, warning that its concessional funding base is finite and may not remain available on current terms indefinitely.

“This report, therefore, seeks a more market-oriented, self-sustaining complementary approach—not a replacement for KMRC, but a mechanism that can serve lower-income households through an alternative pathway,” it adds.

The report notes that urban households in Kenya access housing through multiple pathways shaped by income volatility, tenure preferences, and limited access to long-term credit.

According to the March 2026 findings, only three to five per cent of households can access mortgage-financed homes.

Short-term instalment purchases account for eight to 12 per cent, while rent-to-own arrangements and incremental self-build each serve about 10 to 15 per cent.

“These patterns confirm that rental, rent-to-own, and incremental models dominate housing consumption, while mortgages play a marginal role in the affordability segment,” the report states.

Data from the Central Bank of Kenya and KMRC shows that fewer than 30,000 mortgage accounts exist nationally.

“Importantly, this figure does not equate to the number of households with mortgage access,” the report notes.

“A material share of mortgages are held by higher-income individuals with multiple properties and multiple mortgage facilities.”

Further analysis indicates that the number of distinct households with at least one mortgage is significantly lower, with only about 10,000 to 15,000 individuals able to reliably qualify for and sustain mortgage borrowing.

“Mortgage lending, therefore, functions primarily as a wealth accumulation and investment mechanism, rather than a mass housing access instrument,” the report says.

It concludes that mortgage-backed demand cannot absorb affordable housing units at scale, with demand-side interventions largely benefiting a narrow, higher-income segment.

“The majority of urban households capable of making regular housing payments remain structurally excluded from mortgage finance,” it adds.

Clive Ndege, head of sales at Superior Homes Kenya, points to the contradiction between mortgage access and economic growth.

Despite the real estate sector contributing nearly 10 per cent to the country’s GDP, he says limited access to mortgages continues to slow the uptake of home ownership.

He cites KMRC data showing mortgage penetration remains below two per cent of GDP—far lower than in more developed markets.

“At the centre of this gap is the cost of borrowing. Mortgage interest rates in Kenya currently range from 12 per cent to 15 per cent, putting pressure on affordability for many prospective homeowners,” he explains.

“While fixed-rate mortgages offer predictability, variable-rate structures expose borrowers to market fluctuations, often creating hesitation among first-time buyers.”

Ndege adds that beyond interest rates, buyers must contend with additional costs including stamp duty, legal fees, valuation charges and insurance which can collectively amount to up to 10 per cent of a property’s value.

“These hidden costs continue to present a significant barrier to entry. In response, developers are increasingly evolving their role, from purely delivering housing units to actively enabling structured and accessible home-ownership,” he says.