Making a dream come true using the Absa Bank

The Absa bank

In Kenya, owning a home through a mortgage has been viewed as an unsuitable investment due to the high cost of properties and low uptake of mortgages. Most homebuyers desire a standalone housing unit with a garden area or a luxury apartment, which can limit their income or require them to spend more.

However, John Kaburu, the Head of Mortgage Retail and Business Banking at Absa Bank Kenya, believes that owning a dream home can be a costly affair and suggests that people should consider buying an affordable unit that can later be an investment when rented to diversify their revenue streams and ensure cash flows at retirement.

Kaburu advises that people should buy a home that they can afford and that will give them a base as an asset portfolio in real estate before they acquire their dream home. He further suggests that people should balance infrastructure, affordability, ease of commuting, and amenities when making a decision. By doing so, more people between their upper 20s and lower 30s can take up mortgages, expanding the market.

According to recent statistics, the value of mortgage loans outstanding in Kenya increased by 5.3% from Sh232.7 billion in December 2020 to Sh245.1 billion in December 2021.

However, the number of mortgage loans dropped by 0.9%, from 26,971 in December 2020 to 26,723 in December 2021, due to high property prices, high-interest rates, and the availability of a limited range of houses or mortgages. Consequently, people prefer unsecured loans to mortgage for construction or home purchases. Kaburu notes that this points to the low uptake of mortgages in Kenya.

About the Absa Bank mortgage

Absa Bank, one of the 32 institutions offering mortgages in Kenya, is conducting training to raise its home loans uptake through customer events, partnering with employers to present housing options and hold financial literacy sessions.

The lender is also hosting discussions on social media platforms to find more accessible and effective home financing solutions for customers. John Kaburu, the Head of Mortgage Retail and Business Banking at Absa Bank Kenya, says that they are educating people on the best route to take when financing a home purchase.

Many people are taking unsecured loans and stretching their monthly income over a long time instead of taking a mortgage, which has lower monthly repayments than all the combined loans that they are servicing.

Kaburu acknowledges that some people avoid mortgages due to uncertainties in the business and employment environment. He encourages people to go the mortgage route to manage their cash flows effectively. He warns that taking unsecured loans to buy a home can lead to delayed projects, and people may not get their houses on time due to poor planning.

Kaburu suggests that people can manage with a mortgage repayment of Sh40,000 within five and a half years, rather than taking unsecured loans of Sh40,000 for seven or nine years to purchase a home.


Mortgage plans of the Absa Bank

According to the Central Bank of Kenya (CBK), the average mortgage loan size in the country rose from Sh8.6 million in 2020 to Sh9.2 million in 2021, mainly due to the increased value of mortgage loans advanced during the year. The average interest rate charged on mortgages in 2021 was 11.3 percent, ranging from 7.1 percent to 15.0 percent. This compared to an average of 10.9 percent with a range of 7.0 percent to 15.0 percent in 2020.

Absa Bank, one of the 32 institutions offering mortgages in the country, is focusing on educating potential homeowners on the benefits of taking a mortgage loan rather than unsecured loans to own homes. The bank is conducting training, partnering with employers to present housing options, holding financial literacy sessions, and hosting discussions on social media platforms to provide customers with more accessible and effective home financing solutions.

Absa Bank provides a wide range of mortgage products to offer competitive rates on pricing, including building-construction loans. The bank finances 100 percent of the project cost for up to 20 years for potential homeowners with land set aside for building and 80 percent of the overall project cost for buying and building for those without land. The bank does not penalize for early repayment, giving customers the freedom to repay in advance, reducing the interest and tenor of the loan.

In addition to providing loans for building-construction, Absa Bank offers straight purchases for a complete home, including affordable housing, targeting middle-income customers and those earning below Sh150,000. The maximum loan amount for this type of loan is Sh8 million, and the bank finances between 90 and 100 percent of the purchase price, which can be used for construction.

Absa Bank also provides loans for the conventional market going beyond Sh8 million to up to Sh10 million full financing with a repayment period of up to 25 years. The affordable housing loan is provided through a private-public offering with Kenya Mortgage Refinance Company (KMRC) that issues money to banks and saccos for onward lending for home ownership under a fixed interest rate of sub 10 percent.

The bank also offers equity releases where customers can use their current property to access additional funds, takeovers from other banks or financial institutions, mortgages for Islamic customers with Shariah compliance, and mortgages in currencies like US dollars, Euro, and British pounds. Absa Bank provides support to customers in their homeownership journey in terms of advice and analysis, fitting the mortgage into their financial plan.