Access to housing finance is getting increasingly less stressful and ‘cheaper’ for home buyers as both public and private sector operators are working on reviewing high interest rate which is a major challenge to mortgage affordability in Nigeria.
While the Federal Government through the Federal Mortgage Bank of Nigeria (FMBN) is now offering zero equity on loans below N5 million to all contributors to the National Housing Fund (NHF), plans are in progress for primary mortgage banks (PMBs) to offer mortgage loans at 9.9 percent interest rate to any first-time home buyer seeking N5 million loan for the purpose of owning a home.
A mortgage banking operator who disclosed this to BusinessDay on condition of anonymity explained that the 9.9 percent interest rate is being perfected by the Central Bank of Nigeria (CBN) which, he said, will be subsidising the rate in favour of home buyers.
“The Nigeria Mortgage Refinance Company (NMRC) will continue to go to the capital market to raise funds and will also continue to refinance our loans,” the operator explained. “What is going to happen is that if, for instance, we get our funds from either the NMRC or CBN at 15 percent interest rate, we will be required to lend to first-home buyers at 9.9 percent and CBN will off-set the balance.”
The operator admitted that 9.9 percent, which is an upper single-digit rate, is still very high, but noted that it was a good start on the journey towards addressing the affordability issue in the mortgage system which constitutes a huge golf between many Nigerians and homeownership.
To the operator, what the mortgage industry needs today is reduction in interest rate and not recapitalisation as is being considered by the CBN.
“Capital adequacy is not the problem of the industry today. If the industry is not growing, it is not because of capital, because we have enough capital from the earlier recapitalisation and refinancing by the NMRC. The interest rate needs to be reduced so that more people will take loans. That way, the industry will grow,” the operator said.
Other industry operators and real estate stakeholders see the problem of the industry beyond recapitalisation.
Whereas Paul Onwuanibe, CEO, Landmark Group, blames lack of clarity for the industry’s slow growth, Adeniyi Akinlusi, CEO, Trustbond Mortgage Bank, looks at the structure of the industry.
“The structure of the mortgage industry is a problem; there is high interest rate and this is coming on the back of economic condition,” noted Akinlusi, who is also president of Mortgage Bankers Association of Nigeria (MBAN).
He stressed that “recapitalisation is not the main challenge, considering that mortgage banks do not give loans from shareholders’ funds but funds from deposits”.
Kehinde Ogundimu, MD/CEO of NMRC, shares the view that recapitalisation is not the main challenge of the mortgage industry, recalling that his company, as at December 2018, had refinanced mortgage loans originated by the lending institutions totalling N18 billion.
He explained that refinancing was in line with the company’s mandate to promote affordable home-ownership in the country by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets.
Typically, mortgage interest rate in Nigeria hovers between 7 percent and 10 percent for FMBN mortgages and 15-25 percent for commercial mortgage institutions, making the country one of the highest in the world.
In advanced economies, the mortgage industry makes significant contribution to economic development with single-digit interest rates. But high inflation rate and the attendant high mortgage rate help to reduce housing demand and developers’ investment appetite.
This explains why Nigeria has one of the world’s lowest mortgage to Gross Domestic Product (GDP) rate at about 0.6 percent, which is far behind Ghana’s 2 percent, South Africa’s 30 percent and US and UK’s rates of 60 percent and 70 percent, respectively.