Money Box: Rising Taxes and Housing Levy Push Kenyans Away from SACCO Loans for Home Construction
SASRA clarifies that these deductions directly reduce disposable income, which is a critical factor in mortgage eligibility.
People queuing to join a Sacco in Nairobi. Photo/Courtesy.
By Ruth Sang
A new study has revealed that increasing taxes and mandatory deductions under President William Ruto’s administration are significantly diminishing the ability of Kenyans to borrow from their Savings and Credit Cooperative Societies for home construction. The report indicates that many households are being priced out of mortgage and construction financing as their disposable incomes continue to shrink.
The report, titled Leveraging SACCO Data and Research to Strengthen the Financing of the Affordable Housing Value Chain by the SACCO Sector, commissioned jointly by SASRA, the Kenya Mortgage Refinance Company, and FSD Kenya, points to how the current taxation framework—mainly the Affordable Housing Levy, increased National Social Security Fund (NSSF) deductions, and other statutory charges—has constrained the financial space for many salaried Kenyans.
According to the findings, SACCO members who once qualified for substantial loans are now eligible for significantly lower amounts. For example, a SACCO member with a gross salary of Ksh200,000 qualifies for approximately Ksh340,000 less in loans today compared to April 2022 owing to expanded statutory deductions.
SASRA clarifies that these deductions directly reduce disposable income, which is a critical factor in mortgage eligibility.
“Rising statutory deductions and stagnant wages are limiting how much SACCO members can borrow,” the report notes. “The Affordable Housing Levy, increased NSSF rates, and the new SHIF deductions have further eaten into take-home pay.”
Reduced disposable income is making many Kenyans revisit their home ownership dreams. The report warns that families are increasingly compromising on the size and quality of homes they intend to build, delaying construction plans, or abandoning mortgage applications altogether. It also cautions that sudden changes in deductions could increase the risk of loan defaults, particularly where borrowers already operate under the one-third salary rule.
Notably, over 70 percent of SACCO borrowers who seek land and housing loans earn Ksh100,000 or less, meaning that even minimal reductions in take-home income can exclude them from mortgage access altogether. The report reinforces that the higher the statutory deductions, the lower the chances of qualifying for long-term mortgage facilities.
Besides income erosion, another serious impediment cited in the report is high and non-transparent closing costs, which include legal fees, charges for valuation, and expenses for property transfer, all totaling up to 9–10 percent of the total loan amount. These upfront expenses deter even those who qualify for mortgages.
Turning to Alternatives
With increased difficulty in accessing mortgages, many Kenyans have resorted to general development loans, whose interest rates are in the range of 10–16 percent with a shorter repayment period of between 2 and 8 years, but with simpler and cheaper processing requirements. This trend has resulted in a growing preference for incremental home construction—buying land first and building progressively—an approach that traditional mortgage products are not suited for.
This shift is also having an impact on SACCOs themselves: instead of making quick-turnover development loans that bring in higher returns, they are increasingly being tied to long-term, low-interest mortgages that lock up their capital for many years.
Recommendations to Government The report proposes the establishment of a bridge financing facility, which would address the financing bottleneck by supporting SACCOs in the period between loan disbursement and KMRC refinancing. This would reduce liquidity risks for SACCO lenders. It further recommends that a portion of the revenues from the AHL be reinvested in strengthening SACCO housing finance. Such recycling of these funds into SACCOs, according to the report, would help close the capital gap that the levy is likely to create and make home financing more affordable for members.
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