A Study of determinants of the level of mortgage financing in Kenya
Muhia, Chrispus N.
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The objective of the research was to study the determinants of level of mortgage finance in Kenya. The study focused on the effect of four specific factors in influencing these levels. The factors are lender loss experience, market structures, business cycles and funding considerations adopted by mortgage finance providers in Kenya. The study was guided by the following specific objectives; to establish the effect of lender loss rate experience in determining the risk appetite of banks to finance mortgages, to study the influence of market structures adopted by mortgage financiers in Kenya on level of mortgage finance, to study the effect of business cycles in influencing level of mortgage finance in Kenya and to study balance sheet funding effect in influencing the level of mortgage finance in Kenya. A quantitative methodology was employed in the study, using regression analysis to model the relationship of these factors to the level of mortgage finance. The target population for the study was all banks in Kenya. Data was gathered from regulatory and statistical abstracts from the Central Bank of Kenya and the Kenya National Bureau of Statistics. Lender loss experience, market structure and balance sheet funding were found to significantly influence mortgage levels. The study did not find business cycles to be statistically significant in determining level of mortgage finance in Kenya. The research aims to contribute guidance to policy making and business strategy at the corporate level for mortgage lenders, and recommends that practitioners take into account the effects of potential loss rates, balance sheet funding structures and market structures when setting mortgage business policy. The study also aims to contribute policy guidance on determinants influencing level of mortgage finance, at the governmental and regulatory level aimed at tackling the housing problem in Kenya and ensuring a stable, profitable banking system. Financial regulators, planning and treasury officials need to be especially cognizant of these factors given that mortgage finance plays a key role in the health and rate of growth of the overall economy and of the banking sector. A limitation to the study is the short time horizon of four years scoped that may have contributed to the insignificance of business cycles as a determinant as judged by the study results.