Mortgages in Kenya: A Risky Financial Move?
In Kenya’s real estate landscape, the topic of mortgages often sparks intense debate. This is largely due to the high regard placed on home ownership, which makes the cost of mortgages a significant concern. These loans are not only expensive but also come with repayment terms that can stretch over 25 to 30 years.
So, is securing a mortgage in Kenya truly worthwhile? Opinions on this vary widely. One such perspective comes from Dr. Mumo Muinde, author of The Art of Money & Wealth Creation, who strongly opposes the idea. He believes that committing to a mortgage in Kenya is one of the worst financial decisions a person can make. In his words, signing up for a 15 to 25-year mortgage equates to modern-day slavery.
What fuels such a strong viewpoint? Dr. Muinde outlines several reasons behind his conclusion, challenging readers to reconsider the wisdom of mortgages in Kenya.
Did you know that the term “mortgage” originally meant a “death pledge”? In the Kenyan context, this idea may not be too far off for the following reasons:
- Sky-High Interest Rates – The Kenya Mortgage Refinance Company reported in a 2023 policy brief that the average interest rate for mortgages was around 14.3%. At such high rates, even income-generating properties struggle to repay the loan and associated costs.
- Inflated Housing Prices – The property market in Kenya is heavily influenced by illicit money laundering from corruption, drug trade, and fraud. This artificial demand has driven prices beyond reasonable limits, making it difficult for legitimate investors to earn any return.
- Misleading Value Indicators – Many buyers mistakenly believe that new roads, railways, or public infrastructure automatically increase property values. In reality, property appreciation depends on actual economic growth in the area, not just infrastructure.
- Naive Buyers and Herd Behavior – Kenya has a track record of investment fads, from pyramid schemes to quail farming. This “follow-the-crowd” mentality also affects real estate, where uninformed buyers flood the market hoping for easy gains, distorting prices further.
- Long-Term Financial Chains – Entering a mortgage agreement for two to three decades essentially ties you to financial servitude. In most cases, it’s the bank or lender who benefits significantly—not the borrower.
- Emotional vs Rational Thinking – Homeownership is often viewed as the ultimate sign of financial independence. However, this emotional attachment can cloud judgment when evaluating whether mortgage terms make financial sense.
- The Myth of Everlasting Property Value – Many people wrongly assume real estate is a foolproof investment. But like any other sector, property markets have risks, downturns, and no guarantees of constant profit.
- Leaving a Legacy Fallacy – The popular notion that “I’m building for my children” often lacks practical sense. Ask yourself: are you currently living in your parents’ home? Chances are, your children may not want yours either.
To wrap up, take a look at the growing number of property auctions happening weekly across the country. Isn’t it alarming how many retirees are left with nothing more than a house they can no longer afford to maintain after leaving the workforce?
