DETERMINANTS OF MORTGAGE UPTAKE IN KENYA USING THE CAPITAL MARKET APPROACH

Abstract

Interest rates are the single critical factor that drives the mortgage market and access to more middle income housing. However, the mortgage market can be viewed as a larger capital market where investors can assess the risk and returns of alternative investment relative to the mortgage market to determine their uptake. Therefore, the objective of the study was to analyze the determinants of mortgage uptake in Kenya using the Capital Market Approach. To achieve this objective, the study examines the Mortgage Uptake of the three Major mortgage institutions i.e., Housing Finance, Kenya Commercial Bank and Standard Chartered Bank independently and further considers the trend in the Kenyan Mortgage Industry while incorporating the 44 mortgage institutions and was restricted to period 2006 to 2011 based on the data available since the developing mortgage industry is said to have tripled from period 2006 to 2010 according to the Central Bank Survey 2010.The study utilized a longitudinal design of Ordinary Least Square techniques in analyzing available macroeconomic time series to estimate the model. This method was chosen because of its simple and straight forward ability to show the linear relationship between the independent and the dependent variables. The regression has been done using the E-views Software on the secondary data and the interpretation done based on the output provided. From the results, it can be concluded that return on saving and the returns on stocks have an insignificant negative influence on the mortgage uptake in Kenya for the period under study. In addition, in the Case of Standard Chartered Bank, Central Bank Rate had an significant Inverse Relationship on Mortgage Uptake. However, Inflation and Central Bank Rate on the other hand depicted a significant positive influence on the Kenyan Mortgage Uptake, which led to the conclusion from the study that Inflation and Central Bank Rates could be taken as signals for the mortgage uptake rather than the determinants of mortgage uptake. Policy makers should dwell their energies on regulation of the mortgage market since the responsiveness of change in the mortgage rates due to the macroeconomic factors is still slow based on the low development and uptake of this sector.