Effect of Mortgage Market Risk on Mortgage Uptake: A Case Study of Mortgage Lenders in Kenya
Journal of Investment and Management
Volume 4, Issue 6, December 2015, Pages: 334-347
Received: Aug. 12, 2015; Accepted: Aug. 22, 2015; Published: Sep. 2, 2015
Views 4407      Downloads 133
Authors
Grace Melissa Akenga, Department of Business Administration, Chuka University, Chuka, Kenya
Margaret Akinyi Olang, Department of Business Administration, Chuka University, Chuka, Kenya
Nebat Mugenda Galo, Department of Business Administration, Chuka University, Chuka, Kenya
Article Tools
Follow on us
Abstract
Mortgage market is a financial system that provides opportunity for originating and trading mortgage loans. A mortgage loan is used for financing real estate investments. Although there has been a remarkable increase in demand for real estate investments in Kenya the amount of mortgage uptake is still low. Studies reveal risks as important macroeconomic variables in the mortgage market. However the effect of these risks on mortgage uptake in Kenya is inconclusive. The purpose of this study was to evaluate the effect of mortgage market risk on mortgage uptake. The objectives of the study were to determine the effect of credit risk, interest rate risk, price risk and liquidity risk on mortgage uptake in mortgage lending institutions in Kenya. Causal research design was used to establish the effect of mortgage market risk on mortgage uptake. Purposive sampling was used to select a sample size of 27 out of 37 mortgage lenders that had been involved in mortgage lending since 2008 to 2013. Secondary data was obtained from Central Bank of Kenya reports and mortgage special reports for the period under study. The assumptions that form a basis for use of the regression model were tested using homoscedasticity and autocorrelation. Ordinary Least Square method was used to determine the cause effect relationship among variables while hypotheses were tested at 5% significance level. The overall model was found to be significant with F=13.474 and p-value (0.00 < 0.05). The findings revealed that risks faced by lenders affect mortgage uptake such that if the risk involved in lending is high lenders limit the amount of mortgage lending. The study recommended that lenders should ensure risks are well managed so as to increase mortgage uptake. The findings would form a basis for lenders to formulate risk management strategies that would help to mitigate risks and increase mortgage uptake. The study also forms a basis for further research and adds to the existing body of knowledge.
Keywords
Credit Risk, Interest Rate Risk, Liquidity Risk, Mortgage, Price Risk, Real Property, Mortgage Lending Institutions
To cite this article
Grace Melissa Akenga, Margaret Akinyi Olang, Nebat Mugenda Galo, Effect of Mortgage Market Risk on Mortgage Uptake: A Case Study of Mortgage Lenders in Kenya, Journal of Investment and Management. Vol. 4, No. 6, 2015, pp. 334-347. doi: 10.11648/j.jim.20150406.17
References
[1]
Aczel, A. & Sounderpandian, J. (2002). Business Statistics (5th ed.). Irwin: Mc-Graw Hill.
[2]
Andrean, T. (2007). Econometrics. New York: Ventus Publishing.
[3]
Arvantis, Y. (2013). African Housing Dynamics:Lessons from the Kenyan Market. African Development Bank.
[4]
Bangkok Bank. (2008). Annual Report. Bangkok: Bangkok Bank.
[5]
Bianco, K. (2008). The Subprime Lending Crisis; Causes and Effects of the Mortgage Meltdown. CCH Mortgage Compliance Guide and Bank Digest.
[6]
Biernert, L. & Brauner, E. (2007). The Mortgage Lendin Value: Prospect for Development within Europe. Journal of Property Investment & Finance, 25(6).
[7]
Brueggeman, W. & Fisher, J. (2008). Real Estate Finance and Investments. Irwin: Mc-Graw Hill.
[8]
Kariuki, C. (2013). Mortgage Special Report. Kenya: The Mortgage Company.
[9]
Central Bank of Kenya. (2007). Banking Supervision Annual Report. Nairobi: Central Bank.
[10]
Central Bank. (2008). Banking Supervision Annual Report. Nairobi: Central Bank.
[11]
Central Bank. (2009). Banking Annual Supervision Report. Nairobi: Central Bank.
[12]
Central Bank. (2010). Banking Supervision Annual Report. Nairobi: Central Bank.
[13]
Central Bank. (2011). Banking Annual Supervision Report. Naairobi: Central Bank.
[14]
Central Bank. (2011). Banking Supervision Annual Report. Nairobi: Central Bank.
[15]
Central Bank (2012). Bank Supervision Annual Report. Nairobi: Central Bank.
[16]
Central Bank. (2013). Banking Annual Supervision Report. Nairobi: Central Bank.
[17]
Central Bank; World Bank. (2013). Mortgage Finance in Kenya: Survey Analysis. Nairobi.
[18]
Claurietie, T. M. & Sirmans, S. G. (2006). Real Estate Finance: Theory and Practice (5th ed.). South Western: Thomson Publishers.
[19]
Cooper, D. R. & Schindler, P. S. (2006). Business Research Methods. Irwin: Mc-Graw Hill.
[20]
Davis, P. E. & Zhu, H. F. (2004). Bank Lending and Commercial Property Cycles. Switzerland: Bank for International Settlements.
[21]
Dolde, M. (2006). Sources of Funds for Mortgage Finance. Journal of Housing Research, Vol 7, 259-281.
[22]
Erbas, V. W. (2005). Demand for Rural Finance Services. A Journal on Information Finance Markets Vol. 2, 78-92
[23]
Fabozzi, F. J.; Modigliani, F. & Jones, F. J. (2007). Capital Markets Institutions and Instuments (3rd ed.). New Delhi: Prentice Hall.
[24]
Giddings, S. (2007). Housing Challenges & Opportunities in Sub- Saharan Africa. Washington. D.C: International Housing Coalition.
[25]
Glower, M.; Donal, R. & Hendersholt, P. (1998). Selling Price & Selling Time: The Impact of Seller Motivation. Real Estate Economics, Vol 5, 719-740.
[26]
Guajarati, D. N. (1998). Basic Econometrics. New York: Mc Graw Hill.
[27]
Hahm, H. (2004). Financial Firm Production of Monetary Services. A Generalised Systemic Barnnet Profit Function Approach. New York: McGraw Hill
[28]
Hass Consult Survey. (2013). Kenyan Property Market. Nairobi: Hass Consult.
[29]
Hassler, O.; Chiquer, L. & Lea, M. (2004). Mortgage Securities in Emerging Markets. Wasington.D.C: Financial Sector Operations & Policy Department.
[30]
Jacobus, C. J. (1999). Real Estate Principles (8th ed.). New Jersey: Prentice Hall.
[31]
Kibirige, M. (2006). Mortgage Financing; How it Works in Uganda. The Journal of Capital Markets Industry, Uganda, Vol 1, 10-14.
[32]
Kolbe, P. T.; Gaylon, G. E. & Rudner, H. G. (2003). Real Estate Finance (1st ed.). Chicago: Dearborn Financial Publishing.
[33]
Kothari, C. (2004). Research Methodolgy: Methods and Techniques (2nd ed.). New Delhi: New Age International (P) Ltd.
[34]
Landau, S., & Everitt, B. S. (2004). A Handbook on Statistical Analysis Using SPSS. New York: Chapman & Hall Publishers.
[35]
Lea, M. & Chiquier, L. (1999). Providing Long Term Finnacing for Housing. The Role of Secondary Markets. California: Office of Departmental Studies, Bureau for Development Policy United Nations Development Programme.
[36]
Li, Y. & Resenblatt, E. (2005). Can Urban Indicators Predict House Price Appreciation. Real Estate Economics, Vol 5, 85-101.
[37]
Lind, D. A.; Marchal, W. G., & Wathen, S. A. (2008). Statistical Techniques in Business and Economics. New Delhi: Mc Graw Hill.
[38]
Marshall, J. (2009). The Financial Crisis in the U.S : Key Events Causes and Responses. U.K: Library House of Commons.
[39]
Mugenda, O. M. & Mugenda, A. G. (2003). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts Press.
[40]
Mutero, J. (2010). Mobilising Pension Assets for Housing Finance Needs in Africa. East Africa: Centre for Affordable Housing Finance in Africa.
[41]
Njiru, M. & Moronge, M. (2013). Factors Affecting Growth of Mortgage Indusries in Kenya. A Case Study of National Housing Corporation. International Journal of social sciences and Entrepreneurship, 1(7), 26-35.
[42]
Njuguna, N. (2011). Sterngthening the Mortgage Market. Nairobi: Government Printer.
[43]
Nyandemo, S. N. & Sigh, D. (2003). Managerial Economics Theory and Practice. New Delhi: Paul Sigh.
[44]
Oriaro, M. (2000). Bridging the Finance Gap in Housing and Infrastruture in Kenya. A Case study of NACHU. Nairobi: University of Nairobi Press.
[45]
Robertson, W. H. (1934). Industrial Fluctuations & the Natural Rate of Interest. The Economic Journal, Vol 4, 650-656.
[46]
Rose, P. S. (2003). Money and Capital Markets (8th ed.). Irwin: Mc-Graw Hill.
[47]
Saunders, A. & Marcia, C. (2001). Financial Markets and Institutions. New York: Mc-Graw Hill.
[48]
Scanlon, A. & Whitehead, B. (2004). International Trends in Housing Tenure and Mortgage Finance. London: London School of Economics.
[49]
Sharpele, D. (2000). Apartments and Rent, Homes for Sale and Foreclosure. Census Rent Information Vol 5, 165-178..
[50]
Trieschmann, J. S.; Hoyt, R. E., & Sommer, D. W. (2005). Risk Management & Insurance. South Western: Thomson.
[51]
Vuyisani, M. (2003). Preview of Housing Finance Systems in Four Different African Countries: South Africa, Ghana, Tanzania and Nigeria. Washington D.C: International Finance Corporation
[52]
Wang, X. & Hongfei, C. (2007). Does Property Market Risks Matter in Commercial Loan Pricing: An Inquiry into the Determinants of Commercial Mortgage Loan Spread. Massachusettes: Department of Urban Studies and Planning.
[53]
World Bank. (2011). Developing Kenya's Mortgage Market. Wasington, DC: Office of the Publisher.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186