For Stephen Okoth, earning a regular salary has not necessarily brought him closer to one of the biggest milestones many working Kenyans dream of, which is owning a home.
Like many salaried workers, Mr Okoth has found that having a predictable monthly income does not automatically make homeownership easy. The challenge is not simply finding a house. There is the deposit to raise, paperwork to complete, valuation and legal costs, and perhaps most importantly, the monthly repayment that must compete with food, school fees, transport, utilities and other household expenses.
For workers such as Mr Okoth, the question is therefore no longer just whether they can afford a house, but whether they can afford the financing required to buy one. This is where employer-backed mortgages could offer a new route to homeownership for salaried Kenyans.
Under such arrangements, employers can partner with financial institutions or property developers to facilitate home loans for their employees, with repayments made through payroll deductions, commonly known as check-off.
For developers, the model could also solve another problem that has long constrained the housing market, which is finding enough buyers who can afford to purchase the homes being built.
Mi Vida Homes chief executive officer Sam Kariuki says weak demand-side financing remains one of the biggest constraints to both homeownership and the ability of developers to scale up residential projects.
“I'll say one of the constraints to both home ownership by Kenyans but also to scaling by real estate developers has been the weakness or gaps in the demand-side financing,” Mr Kariuki says.
He describes Kenya's residential real estate financing market as “insufficiently sophisticated”, arguing that the weakness has contributed to low homeownership levels in urban areas while limiting the ability of developers to rapidly expand.
The result is a peculiar situation where there is strong demand for housing, but a relatively small pool of people who can secure financing to buy it. The problem, therefore, may not necessarily be a lack of Kenyans who want homes, rather, it is the shortage of accessible and affordable financing mechanisms capable of converting that demand into actual purchases.
Kenya has millions of salaried workers receiving predictable incomes every month, yet only a tiny proportion have mortgages.
Employers can partner with financial institutions or property developers to facilitate home loans for their employees.
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Mr Kariuki estimates that the number of mortgage accounts in Kenya is fewer than 30,000, a figure he says highlights the huge gap between the potential market and the number of Kenyans actually using mortgage financing.
“Those who would not mind taking mortgages have been locked up, the barriers are too high,” he says.
The barriers include the cost and complexity of obtaining a mortgage. A worker may have a stable salary but still struggle to raise the deposit required to buy a house. Others may qualify for a loan but find that the monthly instalment is too high once household expenses and other debts are taken into account. There are also legal, valuation and insurance costs, as well as lengthy documentation and other requirements that can make the process intimidating for first-time buyers.
Kenya Mortgage Refinance Company (KMRC) CEO Johnstone Oltetia, however, says a regular salary should not automatically be viewed as a barrier to homeownership. He argues that prospective homeowners simply need to match their property preferences, including location, size and amenities — with their income and repayment capacity.
“A practical starting point is to choose a home whose monthly mortgage repayment is close to the rent already being paid,” he says.
His advice is that workers should consider starting with an affordable property, and as their income and financial position improve, move to another home. For someone such as Mr Okoth, this could mean changing the way home ownership is approached, not necessarily waiting until they can afford their dream house, rather, first getting onto the property ladder with a home that fits within their budget.
Employer-backed mortgages could make this process easier by bringing employers, workers, lenders and developers into one arrangement.
Mr Kariuki says such schemes can reduce risk for both lenders and developers. For example, if an employer agrees to facilitate the purchase of housing units by its workers and supports repayment through a check-off system, the lender gains greater visibility over the borrower's income while the developer gains a more predictable pool of potential buyers.
“It then means the credit risk in that particular model is significantly minimised and the sales becomes predictable from a residential developer perspective,” he says.
A regular salary should not automatically be viewed as a barrier to homeownership.
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“Employer housing schemes are both a de-risking tool,” Mr Kariuki says, noting that they can reduce credit risk while also addressing market risk for developers.
The model could be particularly useful for developers targeting affordable and middle-income housing. Instead of constructing apartments and waiting for individual buyers to emerge, developers could work with large employers whose employees have expressed interest in home ownership.
A company with hundreds or thousands of workers could, for example, partner with a developer and lender to provide eligible employees with access to homes financed through their salaries. For developers, that creates a more predictable market. For workers, it could simplify the journey from renting to owning. And for lenders, the employer's involvement could provide an additional layer of confidence in the borrower's ability to repay.
Can it really increase homeownership, though? Mr Kariuki believes the answer is yes, but says further reforms are necessary. He argues that if Kenya's mortgage market becomes more sophisticated and some of the existing barriers are removed, an increase in mortgage accounts should translate directly into an increase in the number of people owning homes. That would have implications far beyond individual households. If hundreds of thousands more salaried Kenyans were able to finance homes, demand for affordable housing would rise sharply. Developers would then have a stronger incentive to build for the mass market rather than concentrating on high-end properties.
Mr Kariuki says the potential market is enormous. He points to an estimated 3.5 million workers in the formal employment sector and says only a fraction have taken mortgages. There is also a much larger pool of Kenyans working in the informal sector who could potentially afford mortgages if appropriately priced products were available.
A borrower will save interest running into millions of shillings over the life of the mortgage if one decides to make early repayments.
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“Employer-backed schemes are the de-risking instrument to drive that,” he says.
The effect, he argues, could be a dramatic expansion of the housing market.
“All of a sudden hundreds of thousands of people who had been locked out of the housing market now have a means of financing their acquisitions of homes,” he says.
The potential of employer-backed mortgages comes as Kenya continues to reform the mortgage market through KMRC.
Mr Oltetia says the company has helped address one of the long-standing problems in mortgage financing, pricing.
“KMRC provides banks and SACCOs with long-term mortgage funding, enabling participating lenders to offer eligible borrowers fixed, single-digit interest rates and longer repayment periods of up to 25 years,” he says.
The longer repayment period can spread the cost of purchasing a home over many years, reducing the size of monthly instalments and potentially making mortgages more manageable for salaried households. Borrowers do not apply to KMRC directly for a mortgage. Instead, they access KMRC-supported loans through participating banks and SACCOs, subject to their ability to repay and the eligibility requirements of the lender. Mr Oltetia says this is important because access is not restricted to workers whose employers have established their own housing schemes.
“Unlike employer-funded schemes, KMRC funding is available to all eligible Kenyans, including civil servants and employees of organisations without funded mortgage programmes,” he says.
This distinction could prove important. Employer-backed schemes can provide a powerful mechanism for individual organisations, but their reach is limited to workers employed by participating companies. A worker employed by a small company without a housing programme could therefore remain outside such an arrangement.
Mr Oltetia says the lower rates have contributed to some improvement in mortgage uptake, although he acknowledges that Kenya remains far from having a deep mortgage market. He nevertheless believes the government's ambition of expanding the number of mortgage accounts to two million is plausible. For him, employer-backed schemes could complement the reforms already taking place.
