A new report has found that the majority of Kenyans can no longer borrow from their SACCOs to finance home construction due to recent government policies on taxation and the housing levy introduced under President William Ruto’s administration.
The report, titled Leveraging SACCO Data and Research to Strengthen the Financing of the Affordable Housing Value Chain by the SACCO Sector, was commissioned by the SACCO Societies Regulatory Authority (SASRA), the Kenya Mortgage Refinance Company (KMRC), and FSD Kenya.
It found that rising taxes and statutory deductions are creating a financial squeeze, effectively pushing many Kenyans out of their own construction projects.
According to the report, many Kenyans are overburdened by the levies, pointing out that, for instance, a SACCO member earning a gross monthly income of Ksh200,000 is subjected to increased deductions, which now reduce their eligible loan amount by approximately Ksh340,000 compared to April 2022.
SASRA, in its report, established that the combination of the Affordable Housing Levy, higher National Social Security Fund (NSSF) contributions, and other statutory charges significantly decreases disposable income (the amount individuals have after taxation), the key factor in determining mortgage eligibility.
"Rising statutory deductions and stagnant incomes are reducing borrower capacity and limiting the loan amounts that SACCO members can qualify for," the report states. "The Affordable Housing Levy, increased NSSF contributions, and new SHIF deductions have significantly eroded net incomes for salaried workers."
"The decline in disposable income means members are now forced to compromise on home size or quality or delay homeownership altogether," the report warns, adding that unpredictable changes in deductions may also increase non-performing loans as already-strained payslips breach the one-third rule.
At the same time, over 70 per cent of borrowers seeking land and housing loans earn Ksh100,000 or less per month, meaning even small changes in net income can determine whether they qualify for a mortgage or are excluded entirely.
"The increased statutory deductions have a direct and negative correlation with a member’s ability to service a long-term mortgage," the report states.
For many Kenyans in SACCOs, the numbers no longer add up, closing the door to formal, affordable mortgages, even those refinanced by the government through the KMRC.
While statutory deductions such as the Housing Levy, NSSF, and SHIF reduce disposable incomes and limit how much members can borrow, the report notes that a second barrier also stands in the way of affordable homeownership.
This included high and opaque closing costs, including legal fees, valuation charges, and property transfer costs, which can amount to 9 to 10 per cent of the loan value. These additional expenses discourage many members from taking up formal mortgage products even when they qualify.
Alternatives
As a result, many Kenyans are now turning to general development loans, which have higher interest rates (10–16 per cent) and shorter repayment periods (2–8 years) but lower and more flexible closing costs.
What this means is that most Kenyans are now building homes gradually, starting with land purchases and funding construction in stages, something the formal mortgage system is ill-equipped to support.
On the other end, SACCOs are now forced to give out long-term, low-interest mortgages, locking up their money for many years, in instances where they could have issued shorter development loans, bringing in faster and higher returns.
Proposals to the Govt
To address these challenges, the report proposes establishing a pre-financing or bridge facility to help SACCOs cover the gap between loan disbursement and KMRC refinancing, a decision it says will reduce risk for lenders.
The report recommends that part of the revenue collected from the Affordable Housing Levy (AHL) be redirected to support SACCOs. By recycling these funds back into the housing finance system, SACCOs could overcome the capital gaps that the levy itself has unintentionally created, making it easier for members to access mortgages.
