Declining inflation a boon to mortgage business

The single digit inflation rate has been termed as one of the major component that supports dynamic mortgage business, as it keeps lending rate low.

This is because prices of the housing loans are depending largely on the inflation rate stability, among other factors, as the higher the rate the higher the mortgage package.

The CRDB Bank Managing Director, Dr Charles Kimei said in Dar es Salaam last week that if the inflation is kept low there was a great possibility of increasing the house value overtime to knock off even the principle loan amount and interest rate.

“If the inflation rate is maintained at a low level, the house value increases relatively well to offset the interest rate imposed on the loan…overtime the gain of house is overwhelmed,” he said at the launching of the bank’s new house loan product, Jijenge house loan scheme.

Should the interest rate remain higher, it would erode the purchasing power of the shilling thus the value of a house and the loan payback become unbearable, he said.

The CRDB chief said a house purchased today would not carry the same price tag in just two-to-three years to come if the interest rate remains at single digit. 

“One should not be afraid of taking the loan (as this is the best time) to invest on a house since the inflation rate continues to fall, increasing the gain of the (house) investment,” he said.

The econometric analyses show that there are various explanatory factors considered when calculating mortgage rate which include, the cost of deposits, the level of guarantees given, the intensity of the bank-customer relationship and the efficiency of the civil justice system appear to have the most influence on mortgage interest rates. 

Inflation, in July this year, fell to 7.5 per cent from 7.6 per cent in June due to the slower rises in the prices of commodities.

The National Bureau of Statistics (NBS) Population Census and Social Statistics Director Ephraim Kwesigabo said the rate went down slightly due to fact that prices of goods and services raise slightly because of Ramadan.
Source: Daily News, reported from Dar es Salaam, Tanzania
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