Cheaper Mortgages Offer Little Relief as Most Kenyans Still Can't Buy Homes

The Central Bank of Kenya's sustained monetary easing campaign is beginning to reshape the country's lending landscape, but its influence on the property market remains far more restrained than policymakers had anticipated. 

Although commercial borrowing costs are declining and lenders are introducing increasingly competitive mortgage products, new credit flowing into the real estate sector has barely changed, highlighting that cheaper finance alone cannot overcome the structural barriers limiting home ownership and property investment.

Since August 2024, the Central Bank of Kenya has steadily reduced its benchmark Central Bank Rate from 13 percent to 8.75 percent in an effort to stimulate private-sector borrowing, encourage investment and support broader economic growth. The expectation was that lower policy rates would translate into more affordable mortgages, stronger developer financing and renewed momentum in the housing market. However, banking data paints a different picture.

Outstanding credit extended by commercial banks to the real estate sector increased only marginally between April 2025 and April 2026, rising from Sh452.8 billion to Sh453.4 billion. The increase of just Sh600 million contrasts sharply with overall domestic credit growth, which expanded by more than Sh386 billion over the same period. 

Lending to the building and construction segment recorded robust growth exceeding 32 percent, while credit to private households also rose steadily. Real estate financing, by comparison, remained effectively stagnant, suggesting that the transmission of lower interest rates into property lending continues to face significant obstacles.

The figures illustrate an important distinction between the cost of money and access to credit. Although the central bank has reduced borrowing costs at the policy level, commercial lending rates continue to reflect a broader range of considerations. 

Banks still price mortgages according to their funding costs, capital requirements, operational expenses, borrowers' credit profiles and the perceived risks associated with long-term lending. As a result, mortgage rates remain well above the benchmark policy rate despite the easing cycle.

This gap carries considerable financial implications for both households and developers. A relatively small difference in mortgage pricing can translate into substantially higher repayment costs over the life of a 20- or 25-year loan. 

For property developers financing large-scale residential or commercial projects, even modest reductions in borrowing costs can improve project viability. Yet the muted expansion in real estate lending indicates that lower rates have not been sufficient to trigger a broad revival in property finance.

Commercial banks have nevertheless begun adjusting their mortgage offerings to reflect the lower-rate environment. Kenya Commercial Bank has introduced a limited-period affordable housing loan with fixed interest rates starting from 8.9 percent annually, offering financing of up to 105 percent of a property's value with repayment periods extending to 25 years. 

The facility is designed to finance completed homes, land purchases combined with construction, or development on land already owned by the borrower. By exceeding the traditional loan-to-value ratios commonly offered in the market, the product potentially reduces the amount of cash buyers need to contribute at the outset.

Beyond the promotional package, KCB continues to provide conventional mortgage products that finance up to 90 percent of owner-occupied properties, 80 per cent of investment properties and 70 percent of land acquisitions. While these products offer greater flexibility to both salaried and self-employed borrowers, applicants must still meet income thresholds and satisfy the bank's credit assessment requirements. 

In practical terms, a purchaser seeking a Sh10 million home under a standard 90 percent mortgage would still need to raise approximately Sh1 million as a deposit before accounting for taxes and transaction costs. Housing Finance also remains active in expanding mortgage access through products that finance up to 90 percent of a property's purchase price or valuation over repayment periods of up to two decades.

The lender has complemented these offerings with selected concessional mortgage programmes carrying interest rates of 9.5 percent for designated housing developments. Such initiatives demonstrate growing collaboration between financial institutions and developers seeking to improve housing accessibility through targeted financing arrangements.

Despite these increasingly competitive products, affordability continues to dominate the housing finance debate. Mortgage interest rates represent only one component of the total cost of purchasing property. Buyers must still meet expenses including legal fees, valuation charges, stamp duty, insurance premiums and, in some cases, commitment fees. 

Even where lenders finance a substantial proportion of a property's value, these additional costs remain a considerable financial hurdle for many prospective homeowners. More fundamentally, eligibility for mortgage finance continues to depend on stable income and demonstrated repayment capacity. 

Longer loan tenures may reduce monthly instalments, making mortgages appear more manageable, but they also extend borrowers' debt obligations and increase the total amount of interest paid over time. Consequently, declining borrowing costs do not automatically translate into wider home ownership where household incomes remain constrained.

This explains why the impact of monetary easing is likely to unfold gradually rather than produce an immediate surge in mortgage demand. Existing borrowers holding variable-rate mortgages may benefit relatively quickly as lending rates adjust downward. Prospective homeowners, however, still face a comprehensive approval process involving income verification, credit assessments and deposit requirements before financing can be secured.

Developers encounter similar constraints. Lower financing costs improve project economics but do little to eliminate persistent challenges such as expensive urban land, rising construction input prices, regulatory delays and uncertain sales timelines. Construction projects require substantial upfront investment, and prolonged development periods increase financing costs before any revenue is generated.

These commercial realities help explain why lending to construction activities has expanded far more rapidly than financing directed specifically towards real estate ownership and development. The Kenya Mortgage Refinance Company continues to play an important role in addressing longer-term structural weaknesses within the mortgage market. By providing long-term funding to participating banks and savings and credit co-operatives, the institution enables lenders to offer mortgages with longer repayment periods and potentially lower financing costs. 

During 2025, participating institutions borrowed an additional Sh7.7 billion, bringing cumulative refinancing to Sh19.6 billion and supporting more than 5,000 mortgages. Women accounted for nearly half of the beneficiaries, while SACCOs increasingly broadened access to housing finance for middle-income earners.

The refinancing model addresses a longstanding mismatch within Kenya's banking system, where institutions traditionally fund long-term mortgages using relatively short-term customer deposits. Access to stable long-term funding reduces liquidity pressures and allows lenders greater confidence in extending mortgages over periods stretching beyond two decades. Nevertheless, even this structural improvement cannot compensate for inadequate household incomes or limited affordability.