Lower borrowing costs, larger loans and longer repayment periods drove the mortgage market to a decade-long record growth of Sh27.9 billion last year, helping revive home financing after a contraction in 2024.
The 2025 Bank Supervision Annual Report released by the Central Bank of Kenya (CBK) shows outstanding home loans rose 10 percent, or Sh27.9 billion, to Sh307.2 billion in the year ended December 2025 from Sh279.3 billion a year earlier.
This came as the average interest rates for home loans dropped to 13.5 percent in 2025 from 15.2 percent a year earlier.
The average mortgage size, on the other hand, rose 11.1 percent to Sh10 million from Sh9 million, while banks extended the average repayment period to 11.5 years from 11.1 years.
The combination gave prospective homeowners access to larger amounts of credit at lower average rates, while the longer repayment periods potentially helped spread the cost of the bigger loans over more years.
The home loans expansion was the largest over the last decade, taking growth into double digits for the first time since 2015, when prospective homeowners took Sh39.3 billion, or 24 percent, more than the previous year.
‘The value of mortgage loans outstanding was Sh307.2 billion in December 2025, as compared to Sh279.3 billion in December 2024. The increase was due to new mortgage loans granted in 2025,’ CBK officials wrote in the report.
The stronger lending reversed the weakness recorded a year earlier, when the portfolio fell by Sh2.2 billion, or 0.8 percent, from Sh281.5 billion in 2023 on elevated interest rates.
The financial services regulator said the number of home loans issued in 2025 rose by 746, or 2.5 percent, to 30,762 facilities from 30,016 in December 2024. This suggests that the expansion was driven more by the size of loans than by a large increase in the number of borrowers.
CBK found that mortgage rates across the market ranged from 7.5 percent to 19.6 percent in 2025, compared with 8.2 percent to 20.4 percent the previous year.
The decline in borrowing costs also coincided with a sharp shift toward fixed-rate facilities, which accounted for 24.3 percent of mortgages by last December compared with 14.1 percent a year earlier.
Variable-rate facilities remained dominant at 75.6 percent of loans, although their share fell considerably from 85.9 percent in 2024.
The tilt toward fixed rates offered some borrowers greater certainty over repayment costs at a time when lenders were also extending the repayment period for housing facilities.
‘The average loan maturity was 11.5 years with a minimum of 5.7 years and a maximum of 18 years in 2025, as compared to an average loan maturity of 11.1 years,’ CBK said.
The longer terms potentially reduced monthly instalments for borrowers, making it easier to service larger facilities despite the higher value of properties being financed.
The stronger lending was also supported by increased access to mortgage refinancing, with more institutions obtaining longer-term funding through the Kenya Mortgage Refinance Company (KMRC), which lends banks and Saccos at 5 percent interest.
Ten mortgage lenders had outstanding mortgage refinancing facilities from KMRC in 2025, increasing from seven in 2024. Their outstanding KMRC-backed facilities jumped 64.7 percent to Sh19.6 billion in December 2025 from Sh11.9 billion a year earlier, the CBK reports.
The increase in refinancing came as the mortgage market remained heavily concentrated among a handful of lenders, with nine institutions accounting for 90.6 percent of the market, comprising 39 lenders.
Seven large-sized banks – KCB, Absa, Stanbic, NCBA, Co-operative, StanChart and Equity – accounted for 77.4 percent, while two medium-sized lenders, HFCB and Family, controlled another 13.2 percent.
The concentration was pronounced among the four largest banks, together accounting for nearly 60 percent of outstanding loans.
KCB held Sh91.5 billion, equivalent to 32.8 percent of the market, followed by Absa with Sh31.3 billion, or 11.2 percent, Stanbic with Sh22.3 billion, or eight percent, while NCBA had Sh21.6 billion, representing 7.7 percent of outstanding loans.
Despite the rebound, stronger lending did not ease repayment stress, with non-performing mortgage facilities rising by Sh4.2 billion, or 9.13 percent, to Sh50.2 billion during the year.
‘The non-performing mortgage loans to gross mortgage loans ratio was 16.3 percent in December 2025, as compared to 16.5 percent in December 2024,’ CBK wrote.
The ratio remained above the industry gross NPLs-to-gross-loans ratio of 16 percent in December 2025, although it was below the 17.1 percent recorded across the banking industry a year earlier.
Banks also continued to require substantial borrower equity, with most maintaining maximum loan-to-value ratios below 90 percent of property values, limiting the extent to which buyers could finance purchases entirely through borrowing.
CBK expects the recovery in housing finance to continue this year, with demand for mortgage loans projected to increase as interest rates stabilise and the supply of affordable homes expands through government-backed projects.
The regulator also sees faster processing of land transactions as the Ministry of Lands digitises its processes, potentially reducing delays that have historically affected property purchases and mortgage disbursements.
CBK further expects availability of discounted long-term financing from institutions such as KMRC, alongside partnerships between developers and financiers to provide affordable housing, to support demand for home loans.