INTEREST RATE, MONEY SUPPLY AND GROWTH OF MORTGAGE FINANCING AMONG COMMERCIAL BANKS IN KENYA

Abstract

Purpose: The purpose of this study was to investigate the effects of interest rate and money supply on the growth of mortgage financing among Commercial banks in Kenya. Materials and methods: The study adopted a descriptive research design. The population contained 35 loan lending commercial banks over a period between 1985 and 2019. Secondary data was used from desired financial statements available to the public of the singular commercial banks and other posted reports of financial institutions and establishments in conformity with the study. Time-series data were analyzed using STATA version 13 software, regression analysis and model specification tests. The hypothesis was tested using the multiple regression approach a significance level of 0.05 was used. Results: The study found that interest rate (coef= -0.0822, p= 0.007) and money supply (coef= 0.548, p= 0.00) have significant effects on the growth of mortgage financing among Kenyan commercial banks. Unique contribution to theory, practice and policy: Kenya's central bank should put in place mechanisms to guarantee that interest rates and money supply do not have adverse impacts on bank mortgage financing. The government should guarantee currency stability since currency fluctuations may have a negative impact on commercial bank mortgage borrowing. The classical theory is therefore relevant in our research since interest rates impact mortgages when capital demand increases. The quantity theory of money demand also holds that individuals want cash based on the transactions they need.