Lending Interest Rate on the Growth of Mortgage Financing in Kenya
DOI:
https://doi.org/10.55077/edithcowanjournaloffinanceandaccounting.v5i1.145Keywords:
Lending Interest Rate on the Growth of Mortgage Financing in KenyaAbstract
Purpose: The current study, sought to investigate the effect of average quarterly lending interest rate on quarterly growth of mortgage financing in Kenya. This study was guided by the loanable funds theory.
Design/ methodology/ approach: The study took a quantitative approach drawn from the positivism research philosophy. Therefore, the study was a time series research design which was used to track the growth of mortgage financing in Kenya for the last 20 years – from the year 2002 to 2021. The study targeted the time-series quarterly data from CBK for the last 20 years. Items to be collected included the following: average quarterly lending interest rate and quarterly growth of mortgage financing. The study used secondary data which was extracted from CBK quarterly data reports website for the period 2002 to 2021. The quantitative secondary data was analyzed by use of descriptive and inferential statistics. A 95% confidence interval was the statistical error variance used. Data was coded and analyzed using STATA 14 (or EViews 14.0).
Findings: The findings revealed that lending interest rate and growth of mortgage financing in Kenya are negatively and significantly related (β = -0.265, p=0.020). This implies that an increase in lending interest rate results in a decrease in the growth of mortgage financing by 0.419 units and vice versa.
Unique contribution to theory, policy and practice: Given the long-run negative effects of lending interest rates on the growth of mortgage financing in Kenya, the study recommends that the Central Bank of Kenya (CBK) should develop and implement policy frameworks aimed at stabilizing and minimizing inflationary pressures, which often trigger increases in interest rates. High lending rates erode the purchasing power of citizens, consequently, discouraging home ownership and slow down the development of the real estate sector. To address this, the CBK should consider adopting accommodative monetary policies that encourage credit expansion for housing development, while simultaneously strengthening financial regulations to safeguard against excessive risk-taking by lenders.
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