Influence of macroeconomic variables on financing of mortgage products by commercial banks in Kenya

Abstract

Various macroeconomic variables including gross domestic product (GDP), interest rate, inflation,
money supply, and exchange rate, among others, have implication on financing of mortgage by
financial institutions including Banks. In this paper, these variables are incorporated so as to analyze
the influence of macroeconomic variables on mortgage financing by commercial banks. This study
sought to determine the influence of macroeconomic variables on the financing of mortgage market
products among commercial bank in Kenya. The study surveyed 196 head of documentation, credit
operations, credit manager, legal, finance, relationship manager and head of retail sales from 28
commercial banks that offer mortgage products. Data was collected by the use of structured
questionnaire. Findings on the effect of macroeconomic variables on the level of mortgage products
financing showed that that there is a statistically significant correlation between financing of mortgage
products and macroeconomic variables (r=.731, p<.0.000). In addition, results showed that
macroeconomic variables explain the variations of 53.5% of the mortgage financing. Based on the
results, this paper concludes that macro-economic variables in terms of general price levels, gross
domestic product, exchange rate and interest rate have a statistically significant influence on financing
of mortgage products. Results are also conclusive that the additional costs on property price discourage
buyers in acquiring property. The exchange rate applied at any given time affects financing of
mortgages. This study recommends that commercial banks should develop a system that constantly
monitors the macroeconomic environment to determine if the conditions are favorable for mortgage
provision. The system should be developed to monitor macroeconomic indicators such as income level,
inflation, interest levels, and exchange rates. Importantly, commercial banks should set favorable down
payment, that clients can afford to payment at once and clear the balance in installments.