Worldwide, mortgages take the lead as the preferred means for owning a home. In countries such as the United Kingdom, USA, France, and other OECD (Organisation for Economic Co-operation and Development) countries, it is rare to see people paying outright for homes using savings, loans from friends, family members or cooperative societies.
In Nigeria, the widescale adoption of mortgages as a popular path to owning homes is still extremely low. This situation needs to change. It explains in part, the country’s high housing deficit that is estimated by experts to hover between 17 to 22 million housing units with trillions needed to make any significant dent on it.
Fact is that housing is a capital-intensive venture.
A combination of low wages and high cost of living give millions of Nigerians little room to save towards purchasing or building their homes. For Nigeria to properly house its citizens, greater efforts need to be made to bolster access to affordable housing finance to enable them to own their homes.
To tackle the problem of access to affordable housing finance, many countries across the world have promoted the adoption of mortgages as the preferred path to homeownership. The mortgage process entails the granting of monies to obtain a home with good faith that the debtor will repay the loan with interest attached to life of it. Both the debtor and lender benefit if nothing goes wrong.
Over many years, the borrower repays the loan, plus interest, until she or he owns the property free and clear. Mortgages have helped millions of people all over the world buy homes. Even if you do not have N5,000,000 cash, you can buy a N5,000,000 home using a mortgage and pay gradually over time till you defray the loan.
So, essentially, a mortgage is a loan that a lender, which could be a commercial or mortgage bank, gives to a potential homeowner to purchase a house or other real estate. Before mortgage lenders give loans, they check to see if you meet certain requirements such as your income level, your financial ability to pay back the loan. The lender can take ownership of, or foreclose on, the property you have mortgaged if you do not repay the money borrowed, plus interest.
High mortgage adoption leads to high homeownership levels. In the United States for instance, the proportion of households that are occupied by the owners is over 65.1 percent. In the United Kingdom, homeownership rate is above 67.69 per cent and 90 per cent and 84 per cent in Singapore and Indonesia, respectively.
As expected, the situation is different and worrisome in Nigeria. We have a homeownership rate of about 25 percent, which is much lower than even Kenya – 73 per cent, Benin Republic – 63 per cent and South Africa – 56 per cent.
Longer Term, Single Digit Interest Mortgages
It is against this backdrop that the role of the Federal Mortgage Bank of Nigeria (FMBN) in boosting access to affordable housing finance is so significant. Established as a wholesale mortgage finance institution, the FMBN provides primary mortgage banks with low-cost funds to provide affordable mortgages to Nigerian workers.
Notable features of FMBN mortgage loans include zero equity requirements for loans of up N5million and 10 per cent equity down payment for loans above N5 million to N15 million.
Others include single digit interest rates ranging from six to nine per cent per annum and long payment tenors of up to 30 years.
FMBN’s housing products are available to contributors to the National Housing Fund (NHF) Scheme, a social savings scheme designed to mobilize long-term funds from Nigerian workers, banks, insurance companies and the government to boost access to affordable housing finance.
The bank also has a rich and impressive portfolio of social housing products that target a key and dominant segment of the Nigerian population: low to medium income earners.
Consider the FMBN National Housing Fund (NHF) Mortgage Loan and its unique structuring to serve the ordinary Nigerian worker. FMBN leverages funds from the NHF scheme to grant concessionary loans to its accredited Primary Mortgage Banks (PMBs) at a four per cent interest rate.
The mortgage banks in turn use these funds to give loans to qualified workers that contribute to the NHF scheme at six per cent interest per annum with payment tenors of up to 30 years. Loans of up to N5 million attract zero equity down payment while those above N5 million to N15 million require 10 per cent equity. Subscribers are qualified to apply after only six months of continuous contributions to the scheme. The terms and features of the NHF Mortgage loan are affordable and reduce the financial pressure on the meagre incomes of low-income earners.
For comparison, interest rates on housing loans in the open market range from 18 per cent to 25 per cent per annum while maximum loan repayment tenors hover between 10 – 20 years. Most commercial banks and mortgage lenders also require that applicants provide between 30 per cent to 50 per cent equity contribution before loans are processed and possibly approved for disbursement.
Balancing Housing Products and Worker’s Financial Capacity
Besides the NHF Mortgage Loan, FMBN has been innovating to ensure a proper match between its housing products and the financial capacity of an average Nigerian worker looking to own a home. In the past four years, under the leadership of Ahmed Dangiwa, the bank developed and introduced two creative housing products.
The first is the individual Home Construction Loan. The loan enables NHF contributors with unencumbered land, appropriate land titles and approved building plans to undertake self-construction. The loan provides up to N15 million to contributors to the NHF scheme at seven per cent interest rate. Beneficiaries can pay back over a period of up to 30-years depending on their age and number of years left in service.
The second product is the FMBN Rent-To-Own Housing Scheme. The scheme offers an easy and convenient payment arrangement towards homeownership for Nigerian workers. It makes it possible for a Nigerian worker to instantly move into an FMBN-owned housing property as a tenant and conveniently pay towards ownership of the property in monthly or annual instalments over as long as 30 years at an interest rate of seven per cent!
Another equally interesting and worker-centric affordable home ownership product that FMBN has upscaled significantly within the past three years is the home renovation loan. The loan provides up to N1million to enable beneficiaries who already own their homes to carry out improvements. In the past four years home renovation loans totalling N49.265 billion were granted to 60,500 beneficiaries.
FMBN has also revamped its legacy Cooperative Housing Development Loan (CHDL) in line with the initiative of the Minister of Housing, Babatunde Raji Fashola (SAN) to adopt cooperative societies as the channel for the aggregation and delivery of houses to members of cooperative societies.
The FMBN Cooperative Housing Development Loan (CHDL) enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members. Key features include tenors of up to 24 months with a moratorium of 12 months and interest rate of 10 per cent. Up to N500 million is accessible by qualified cooperative societies under the facility. Over the past four years, the bank deployed over N10.985 billion towards the financing of several cooperative housing schemes across the country.
To strengthen collaboration and confidence of workers who are the main contributors to the NHF scheme, the bank approved and is currently executing a National Affordable Workers’ Housing Scheme in partnership with the Nigeria Labour Congress (NLC), Trade Union Congress (TUC) and the Nigeria Employers Consultative Association (NECA), to deliver affordable houses for Nigerian workers. The first phase of the scheme was launched in October 2018 aimed at delivering about 1,400 units.
About 1,400 housing units are ready for commissioning in 12 sites across the six geopolitical zones of the country in addition to Lagos and Abuja, in batches of a minimum of 200 units per zone. The second phase has also commenced and is planned to deliver about 2,160 houses in another 14 locations. House types include finished semi-detached bungalows as well as 1-, 2- and 3-bedrooms in blocks of flats.
Bold Policy Actions Required to Reverse Trend
To reverse the housing deficit in the country, bolder and more aggressive policy actions are required by governmental authorities to strengthen both the demand side of housing in the country as well as the supply side.
This entails supporting and boosting the capacity of existing institutions such as the FMBN to scale their operations for greater impact. It is encouraging to note that the FMBN has been given a key role in the implementation of the government’s economic sustainability plan alongside the Family Homes Fund (FHF). This is a right step in the right direction. For one, the bank has the largest registry of potential homeowners in the country with over five million contributors to the National Housing Fund (NHF) Scheme, which the bank manages on behalf of the government.
The list of subscribers includes civil servants, workers in the private sector, self-employed persons, traders etc with comprehensive information about their income levels and financial capacity to pay back mortgage loans.
Secondly, the FMBN has over the past four years demonstrated through remarkable results that the National Housing Fund (NHF), established in 1992 to pool long term funds for the delivery of affordable housing to low- and medium-income workers, can be made to deliver practical results.
Between April 2017, when the current Executive Management team took charge of the bank to February 2021, FMBN leveraged funds accruing to the National Housing Fund (NHF) Scheme to record N130.460Billion in various loan disbursements. The figure comprises NHF Mortgage Loans totalling N43.141 billion granted to 4,985 beneficiaries and Home Renovation Loans totalling N49.265 billion granted to 60,500 beneficiaries.
The bank also deployed over N38billion towards the development of 9,540 affordable housing units across the country through different construction product windows. This includes Estate Development Loans totalling N20.195billion, Cooperative Housing Development Loans totalling N10.985 billion and Ministerial Pilot Housing Scheme loans totalling N6.873 billion.
The size of mortgage loans disbursed within the four-year period is remarkable at many salient levels. First, it accounts for over 46 percent of the cumulative N282.914 billion that FMBN has disbursed since the NHF Scheme commenced operations 29 years ago in 1992.
Secondly, the amount translates to an 85 per cent
increase in the cumulative value of mortgage loans totalling N152.453 billion in April 2017 when the Management team came on board to N282.914 billion as of February 2021. The speed of processing, size of the loan approvals and disbursements are all unprecedented in the history of the Bank. The performance proves that further empowering FMBN to scale promotion of affordable housing stock targeting the over five million of current NHF subscribers would accelerate Nigeria’s efforts to tackle the housing deficit.
Overall, to achieve high mortgage penetration levels in the country and increase homeownership rates, especially within the low-medium income segments of the economy, there is of course the need to think outside the box giving the perennial stagnation of growth in the sector. But re-inventing the wheel is not an attractive option. A low hanging fruit is to empower strong institutions and systems that have shown capacity to deliver affordable housing to do more.
FMBN presents one such platform. The current Board and Management should, therefore, be encouraged, and its finances bolstered to enable it to create greater impact as the foremost government tool for social housing delivery.
Ikyaave is a public policy analyst based in Abuja.
Source: This Day