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Patrick Kibati

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Kabarak University

CITATION: Kibati, P. (2016). Effects Of Interest Rate Spread On Housing Affordability Among The Low Income Earners In Kenya. International Journal of Economics and Finance. 5, (1), 43-55.


Kenya has recognized the right to housing in the new constitution, stating that every person has the right to “accessible and adequate housing and reasonable standard of sanitation”. However, the country has an annual deficit of 156,000 housing units. This study sought to evaluate the effects of interest rate on housing affordability among the low income earners in Kenya. The target population was 300.The sample size was 249.Stratified random sampling method was used. Primary data was used and questionnaires were used to collect the data. The questionnaires were pretested before launching the main study. Drop and pick method was used. The data collected was analyzed using inferential statistics and descriptive statistics using the IBM SPSS Statistics 20.0.1.The descriptive statistics that were used was the frequencies and mean. The inferential statistics involved the use of Pearson’s correlation and regression analysis. Results indicated that interest rates influences housing affordability among low income earners in Kenya. The respondents agreed that lowering the interest rate spread would lead to an increase in the supply of houses for low income housing, leads to a reduction in the price of houses, leads to an increase the number of Kenyans capable of affording mortgage loans and leads to an increase in the number of people able to spend less than 30 % of their income on housing. It is recommended that the national government should ensure that the new measures put in place through the establishment of the new interest rate base called the Kenya Bank’s Reference Rate (KBRR) which was introduced in 2013 to help tackle the problem of high interest rates is adhered to. It is also recommended that the coverage by credit reference bureaus should be extended to all adult population in Kenya as this would assist the mortgage lenders mitigate against credit risk.

Key Words: Interest Rate Spread, Housing Affordability, Low Income Earners



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