Interest Rates and Housing Finance in Tanzania

Abstract

assessing how monetary policy changes influence access to affordable mortgages. The study investigates the persistent divergence between the Central Bank Rate (CBR) and commercial mortgage lending rates, exploring the underlying structural and institutional factors that weaken monetary policy transmission. Guided by economic theories of interest rate behavior, including Wicksell’s Natural Rate of Interest and Keynes’ Liquidity Preference, the analysis draws on data from the Bank of Tanzania (BoT), the World Bank’s Tanzania Housing Finance Project, and additional scholarly sources. Despite the reduction of the CBR to 5.75% in July 2025, mortgage rates remain high at 15–18%, limiting credit accessibility and slowing housing sector development. The findings reveal that constraints such as limited long-term financing, an underdeveloped secondary mortgage market, and inefficiencies in land titling continue to impede housing affordability. The study concludes that interest rate reductions alone are insufficient to expand mortgage access without broader reforms in refinancing mechanisms, land governance, and financial literacy. Recommended policy interventions include strengthening the Tanzania Mortgage Refinance Company (TMRC), deepening secondary mortgage markets, and introducing targeted interest subsidies for affordable housing.

Keywords:       Interest rates, Housing Finance, Mortgage Lending, Central Bank Rate, Housing Affordability