A mortgage is a financial plan where an individual or a business entity interested in a real estate property uses the property as collateral to secure a loan from a financial institution to acquire that property. The advantage of this is that the buyer gets an opportunity to own a property without having to pay for it all at once. This solely drove the mortgage idea to popularity especially in middle-income economies where the interest in property ownership is high but finances remain a limitation. In Kenya for instance, a recent economic survey by Kenya Bureau of Statistics indicated that most of the middle-class population, which accounts for about 45 percent of total population, has dreams of owning a home.
However, the uptake of mortgage in Kenya is still low and has surprisingly started to go down. For instance, statistics indicate that mortgage loans dropped to Sh104.8 billion in 2016 from Sh106.3 billion in 2015. While other factors may have as well influenced the variation, the fear is largely due to the financing cost where the interest is currently charged at about 13.5%. Despite this being a reduction from the previous average rate of 18% following the passage of an interest capping law, the rate is still high (compare with US at about 4%). The banks charge that high due to lack of long-term funds as they majorly rely on deposits which are short-term. Many prospective property buyers are now looking for alternative plans to help them achieve their dreams. This raises the question as to whether mortgages are expensive and what needs to be done to make housing affordable.