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 byfinancial 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 studysought to determine the influence of macroeconomic variables on the financing of mortgage marketproducts among commercial bank in Kenya. The study surveyed 196 head of documentation, creditoperations, credit manager, legal, finance, relationship manager and head of retail sales from 28commercial banks that offer mortgage products. Data was collected by the use of structuredquestionnaire. Findings on the effect of macroeconomic variables on the level of mortgage productsfinancing showed that that there is a statistically significant correlation between financing of mortgageproducts and macroeconomic variables (r=.731, p<.0.000). In addition, results showed thatmacroeconomic variables explain the variations of 53.5% of the mortgage financing. Based on theresults, this paper concludes that macro-economic variables in terms of general price levels, grossdomestic product, exchange rate and interest rate have a statistically significant influence on financingof mortgage products. Results are also conclusive that the additional costs on property price discouragebuyers in acquiring property. The exchange rate applied at any given time affects financing ofmortgages. This study recommends that commercial banks should develop a system that constantlymonitors the macroeconomic environment to determine if the conditions are favorable for mortgageprovision. 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 downpayment, that clients can afford to payment at once and clear the balance in installments.