The High Cost of Mortgages Lending in Uganda: An Analysis of Interest Rates and Long-Term Value

June 10, 2024

Friends,

In Uganda, If you get a mortgage that requires you to pay 1 million per month for 25 years, the Bank will only lend you UGX 78 million (16% Fixed rate), and you will pay back a total of 300 million by the end of the Mortgage loan in 2047

If the rate is moved from 16% to 12%, then Bank will lend you only 95 million but still require you to pay UGX 300 million back. If Miraculously that rate goes to 8%, the bank can lend you a total of 132 million but require you to pay your UGX 300 million back.

Courtesy photo.

That’s how ridiculously expensive it is to take on a long term mortgage loan in Uganda at such high exorbitant rates but also shows you how lower interest rates an easily make access to mortgage a dream for many.

critically about the cost of money, 3 people, different rates, paying back the same money but the total Loan they can qualify for to get right now is totally different and it’s extremely impossible to get a long term mortgage loan at 8% except if you work for a commercial bank which offer their employees good subsidized loans.

The difference between an 8% rate and a 16% Mortgage rate is a whooping 55 million right now, and this makes the real difference. A person with a rate of 8%, is given more money, gets a better mortgage house and will pay back just 300 million

If we could find a way to make even that rate to reduce to 6% per annum (This truly would be hard in our current Uganda), then the Bank would lend you Ushs 150 million and only require you to pay 300 million in 25 years.

Another person is given the current rate of 16%, will only be given 78 million, get a stupid mortgage house on the market, but still also required to pay back the bank 300 million by 2047

The critical issue, however, lies not in the total amount repaid to the bank, but in the future value of the property.

After a 25-year mortgage term, if one has paid 300 million shillings to the bank, the property should ideally be worth at least that amount, if not more, considering its future value.

The house above goes for over 100 million on the market on a 50*100 plot of land, so if you are to borrow 78 million from the bank and add on your 22 million, you would need to be paying back the 1 million per month, the true question is, will such a house be worth 300 million in 25 years?

The Mortgage business is a store of capital and value, until we start seeing it that way, rather than a consumptive expenditure, we will continue to misdiagnose it.

Now look around our current markets, see houses which range between 60 million - 120 million at the current rate, do you think they will be worth 300 million in 25 years from now? Cost of land inclusive?

The Banks aren't willing to take on the risk like that, painful as is, and they are choosing to lock us out. They know if you take the Mortgage now and failed to pay, they might struggle to sell it off to anyone and get back their money.

The government is also sleeping, otherwise it would be the leading partner in the mortgage financing. At the bare minimum, Get a big moneyied developer, give them free land and tax breaks for 30 years to construct over 100,000 units of Mortgage in Uganda.

We need to have the real conversation of mortgaging and house planning else we will have a generation in 20 years who would have rented all their lives, struggled through capitalistic world and have nothing to show for it, and the depression, banks as well government have a role to play and we hope they better wake up.