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How Tanzania can bring down high mortgage interest rates
Mortgage financing in the country is regulated by the Mortgage Financing Regulations. Supporting pieces of legislation include the Bank of Tanzania Act, 2006 and the Banking and Financial Institutions Act, 2006. PHOTO | FILE
What you need to know:
- The government has been advised to reduce its involvement in the credit market by supporting a secondary mortgage market and fostering competition among lenders
Dar es Salaam. The government has been advised to reduce its involvement in the credit market by supporting a secondary mortgage market and fostering competition among lenders, which will, in turn, pave the way for better loan terms for borrowers.
Reports show that mortgage loans in Tanzania are particularly expensive due to a combination of high interest rates, limited access to long-term funding and stringent regulatory requirements.
Mortgage financing in the country is regulated by the Mortgage Financing Regulations. Supporting pieces of legislation include the Bank of Tanzania Act, 2006 and the Banking and Financial Institutions Act, 2006.
The lending process is based on some core principles such as safety, liquidity, diversity, stability and profitability.
Tanzania Bankers Association executive assistant Tuse Mwaikasu said the financial market in Tanzania still has high deposit rates driven by long-term government securities and other high-rated liquid investments.
Mortgage lenders need long-term deposits to match their long-term loans because while short-term deposits are cheaper, they are not reliable for building sustainable mortgage loan portfolios, she added.
“The Tanzania Mortgage Refinance Company (TMRC) offers medium-term funding, but their current rates are high, making mortgage rates similar to those of short-term loans. However, upcoming government investments in TMRC and rights issues for its shareholders are expected to lower mortgage rates.”
Ms Mwaikasu noted that the high-interest environment has hindered the growth of Tanzania’s mortgage sector compared to neighbouring and developed countries. Banks have been financing housing indirectly through consumer loans, with terms of up to 96 months and limits of up to Sh150 million, leading many homeowners to build their homes incrementally.
A senior lecturer at the Dar es Salaam University College of Education, Prof Abel Kinyondo, said the banking system in Tanzania inflates loan and mortgage prices and advised the government to conduct a cost-effective analysis to ensure adequate loan funding in the market.
He pointed out that mortgage loans in Tanzania have high interest rates over a shorter period (20 to 25 years) compared to other developing countries.
“Longer loan periods with lower interest rates would reduce the financial burden on borrowers, allowing them to invest in other family projects.”
Prof Kinyondo added that the government’s internal borrowing crowds out the private sector from the credit market, making loans more expensive.
“To make the banking sector more competitive and lower interest rates, the government should reduce its internal borrowing.”
Watumishi Housing Investment CEO Fred Msemwa said mortgage loans in Tanzania are unaffordable due to high interest rates, ranging from 13 to 15 percent for five to 25 years.
“There are three solutions that will reduce high interest rates including increasing the supply of houses to lower prices, providing tax incentives, and creating a government fund to reduce banks’ lending risks. These measures would make mortgage loans more affordable,” he said.
National Housing Corporation, corporate, public affairs and information manager Muungano Saguya, said mortgage interest rates must drop to single digits to make them affordable for all Tanzanians.
“Previously the country had a Tanzania Housing Bank, which collapsed in 1995. Now, many banks offer mortgage loans, and increased competition might reduce interest rates,” he said.
In February, the Tanzania Mortgage Refinance Company, which provides long-term funding to financial institutions for mortgage lending, expanded its shareholder base. This expansion is expected to boost the mortgage market, which has grown significantly over the past 12 years.
More funding for lenders could help lower interest rates, which ranged between 13 and 17 percent in 2023, down from 22 to 24 percent in 2010. TMRC now has 19 financial institutions as shareholders, with a total of Sh27.5 billion in shareholding capital, enabling more funding for mortgage loans.
Mortgage loans from commercial banks and financial institutions in Tanzania are typically repaid over 15 to 25 years.
