The effects of GDP growth rate on mortgage interest rates in Kenya
Abstract
Mortgage is a long term loan that ties a prospective homeowner down to mortgage repayment for
a period of 3 to 30 years or transfer of a legal or equitable interest in a specific immovable
property for the payment of debt. Mortgage loans are given out with the repayment of interest
and principal amount until the debt is settled. Following liberalization of interest rates, mortgage
rates fluctuates very frenguently to respond to change in demand and supply of loanable funds in
the financial market. This study seeks to determine the effect of GDP growth rate on the
mortgage interest rates variation in Kenya. The study adopted a survey research design by
looking at retrospective review on GDP growth rate, and the interest rates levied on mortgage
loans between 2003 and 2013. The study used secondary sources to collect data from; Kenya
Bankers Association, Central Bank of Kenya and International Monetary Fund. The data was
analyzed using linear regression and Pearson correlation coefficient analysis methods, conducted
at 95% confidence level. The study established that there is a positive relationship between
mortgage interest rates and GDP growth rate (economic growth). The study concluded that
although GDP growth rate affects the mortgage interest rates, it is a weak relationship suggesting
existence of other strong factors that require further investigation. The study recommended that
mortgage firms should charge interest rates appropriately to attract and enable many low income
earners to use mortgage facilities to mortgage market. The Government through Central Bank
should initiate policy that regulate interest rates. The ultimate goal is to see many Kenyans able
to take up mortgage loans at affordable rates both in urban and rural areas.