The Tanzania mortgage market is expected to shrink this year due to a credit crunch, high interest rates and some banks, which had planned to offer this facility, pulling out of the market.

The banks include Meru Community Bank and Covenant Bank for Women, whose operations were shut down by the Bank of Tanzania this year due to inadequate capital.

The minimum core capital is Tsh7.5 billion ($3.3 million). According to the Bank of Tanzania, the maximum tenure of any mortgage loan should not exceed 20 years.

Total lending by the banking sector for mortgages reached Tsh476.54 billion ($214.4 million) and the total number of mortgage was 2,686 as at December 2016.

Interest rates for mortgages vary between 16 per cent and 21 per cent. This makes the country’s mortgage market smaller compared with Kenya, Rwanda and Uganda.

Data shows that in Kenya, various commercial banks charge between 12.3 and 15.6 per cent on mortgages while in Rwanda and Uganda, they are almost the same as those in Tanzania.
Mortgage debt outstanding as a proportion of Tanzania’s GDP stood at Tsh416.94 billion ($187.6 million) as at end of December 2016. This is lower than other East African countries.

In Rwanda, it stands at around 3.6 per cent of the GDP while in Kenya and Uganda, it is at 3.4 per cent and 0.9 per cent respectively.

Lending criteria

At the same time, tighter lending criteria by lenders has made it even more difficult for people with little or no deposits to secure funds. This is because most lenders cannot afford relatively long-term financing and few housing developers.

However, there are signs of growing competition in the market, with a number of major lenders reducing their rates.

For example, First Housing Company Ltd came in the market with the lowest rate, offering four new mortgage products at a fixed prime lending rate of 15 per cent, which is the lowest rate for mortgages in the country.

Its products include home purchase, improving an existing home, extending an existing home and financing equity in a home.

Tanzania has the second highest mortgage interest rate at 18 per cent while Uganda is leading with 19 per cent. Kenya charges 14 per cent, Rwanda 16 per cent and Burundi 16 per cent also, according to a review by the Centre for Affordable Housing Finance in Africa.

The proportion of urban households who could afford a $7,500 house in Tanzania is estimated at 11 per cent, followed by Burundi and Rwanda (10 per cent), Ugandans (27 per cent) and Kenyans (61 per cent).

Market domination

The domestic mortgage market is dominated by five top lenders, accounting for 70 per cent of the mortgage market. Equity Bank commands 20 per cent of the mortgage market share, followed by Diamond Trust Bank (16 per cent), Stanbic Bank (11 per cent), Bank M (10 per cent) and Azania Bank (9 per cent).

“The lending market is currently beset by high uncertainties with the ongoing credit crunch, falling house prices, rising arrears and repossessions and indebted consumers struggling to get approval for earning credit,” said Lussuga Kironde of Ardhi University.

Prof Kironde said lenders would continue to make their lending criteria even more strict, while focusing on growing their customer base.