How poor mortgage system frustrates housing programmes
Low-income earners have been facing challenges meeting one of the basic needs of man, shelter, due to lack of access to finance. The poor mortgage system in Nigeria has made housing unaffordable for millions, writes JOSEPHINE OGUNDEJI
Nigeria’s housing shortage still persists, despite the real estate industry contributing 5.64 per cent to the country’s GDP in 2022. The Federal Government would need to spend N21 trillion to address the country’s 28 million housing deficit. This is to meet the needs of a rapidly growing population, which is estimated to be 219 million.
The country’s poor mortgage system and economic crunch have made it difficult for many Nigerians to have a roof over their heads. This is compounded by a lack of finance, a dearth of long-term loans and the high-interest rates that lenders demand. Many depend on personal savings to build a house.
The high unemployment rate in Nigeria, which the Nigerian Economic Summit Group predicted would hit 37 per cent this year, and the low disposable income of many Nigerians have made it difficult for many to afford a house, experts said.
The current minimum wage is N30,000, slightly above $65 ($1/N460.44 exchange rate), having been reviewed upward from N18,000 last year. Moreover, the rising inflation rate, which stood at 21.82 in January, has undermined the minimum wage increase. The country’s benchmark interest rate currently stands at 17.5 per cent as the central bank has kept a hawkish stance to combat spiralling inflation. This has made mortgage loans unaffordable for many.
Most mortgage banks require borrowers to pay at least one-third of the cost of the house they want to buy or service the loan with 33.3 per cent of their monthly income. A prospective homeowner is expected to at least pay approximately N10,000 per month for a 30-year loan period, depending on the type of house he is applying for. It has been challenging for prospective homebuyers since they also have to pay a lot for decent accommodation.
To worsen matters, mortgage banks rarely give long-term loans. Due to a lack of price stability, prospective homeowners cannot get 30-year mortgages in the country. Many Nigerians cannot afford the short-term financing provided by mortgage banks, hence the huge housing deficit in the country.
Mortgage lenders should not be blamed for short-term housing financing. Mortgage banks, like other commercial lenders, are required by the central bank to maintain a capital adequacy ratio of 15 per cent and ensure that non-performing loans are under 5 per cent, so they are mindful of the projects they finance.
Operators in the built environment expressed concern over the weak mortgage system in Nigeria. They said the lack of an efficient mortgage system had made it difficult for many Nigerians to access affordable housing.
The Executive Secretary of the Association of Housing Corporations of Nigeria, Toye Eniola, told The PUNCH in an exclusive interview that the mortgage system in Nigeria was crawling.
He said, “The mortgage system is seriously crawling. We have some enabling laws that are supposed to drive the mortgage system in Nigeria but they are not well implemented. We have mortgage banks that are in the business of buying and selling, but not in the actual business of mortgage because the majority of them do not have the funds to give out.
“Virtually every mortgage bank in Nigeria depends on funding from the Federal Mortgage Bank. Funding from the Federal Mortgage Bank cannot go around to everybody. We need a serious funding structure in the mortgage market to make it more vibrant.”
According to him, there should be an enabling law that will grant a provision for foreclosure.
He added, “We have a very bad law in Nigeria that makes it easy for people to hide under it to perpetuate illegality. We need a foreclosure law that once you defraud on a mortgage, you will be found culpable. This will attract investors to pump money into the mortgage market.”
A land surveyor, Demola Isaacs, claimed that the country’s mortgage system is the system itself is weak and favours few people.
He said, “We have a system where they take money for servicing and maintaining our accounts without considering one for affordable housing through a mortgage. The mortgage system in Nigeria is very faulty, that is even if it exists.”
Also, a former President of the Association of Town Planning Consultants of Nigeria, Moses Ogunleye, said that the mortgage system in Nigeria was weak.
He added, “Even if the mortgage is to be strengthened in Nigeria, earnings must also go up. In Nigeria, those who obtain mortgages are the rich, so they buy more to invest.”
The Chairperson of the Association of Women Town Planners, Federal Capital Territory Chapter, Lami Ayuba, noted that the policies on mortgages in the country were not friendly.
She said, “Most people are in dire need of shelter. How many per cent of them or the population are earning good salaries? Most are civil servants and petty traders like the market women.
“Hence, if the government is keen on bridging the affordability gap through mortgages, who are they really targeting?”
Speaking on the issue, a mortgage banker, Bukola Jegede, faulted the country’s mortgage system, describing it as nonexistent.
“The interest rate on any mortgage is double-digit and it is around 28–30 per cent. It is only a ritualist or a fraudster that can take a mortgage with that kind of high interest. The institution here is not like we have it abroad, where they get a single-digit interest rate.
“It is true that the Federal Government-owned mortgage institutions charge six per cent interest. For other mortgages, you cannot get anything less than 18 per cent, which does not allow the mortgage system to thrive. Also, most mortgage institutions do not do long-term lending. They only do five years maximum because they want their money back as fast as possible because the longer loans are with Nigerians, the more difficult it would be to get them back.”
While asserting that the country’s mortgage system was faulty, another mortgage banker, Nnaemeka Omeh, noted that the system was characterised by flaws and the major issues were the high-interest rates and the securitisation process.
On the way forward, she said the interest rate should be reduced drastically and mortgages should be linked to salary accounts.
She said, “The interest rate on a mortgage must reduce drastically. Also, if there is a way mortgage can be linked to salary accounts by making the salary accounts domiciled with the mortgage banks to enable them to monitor salaries coming in, just like a pension scheme.”
Jegede asserted that the government had left what should be regulated in the mortgage industry and regulated things that should not be regulated.
Attributing the challenge to financial incapacitation and liquidity, the Managing Partner of Fonahanmi Idris & Associates, stated that the country has the capacity and potential to harness the mortgage system.
He said, “We are supposed to lend a huge sum of money for a long period of time, but most of what we have in Nigeria are short-term deposits because the mortgage banks want quick terms, and it has become like a term loan.
“Most of these mortgage banks do not have the capacity, even the Federal Mortgage Bank of Nigeria, because they do not have enough money to support the mortgage banks. Even when they lend, some of the people do not have collaterals, even if they have collaterals, some of their titles have challenges that make it difficult for the mortgage banks to accept them.”
Speaking on the way forward, the consultant noted that the incoming government should make a proposition on this.
He said, “Most of the ideas we recommended to make housing available to Nigerians have been stolen. We recommended that unclaimed dividends should be channelled through government institutions for mortgage purposes. Instead of doing that, the government started borrowing the unclaimed dividends for themselves.”
According to him, the Securities and Exchange Commission was supposed to come up with a lot of products to enable people to access a long-time capital.
He added, “The incoming government should start from somewhere. The land is a key element in housing. So, if they make lands accessible to people who are willing in terms of cooperatives, institutions, and private establishments, among others, this will go a long way. There is nothing wrong if people under the umbrella of one organisation make one application for landed property.
“Government should decentralise the system, making it easily accessible for people to go through them instead of property developers, which might make people end up falling victims of land scams in the hands of fraudulent developers.”
For the Chief Executive Officer of Riel Homes, Dr Kolade Adepoju, corruption was the major challenge bedevilling the country’s mortgage system.
He said, “I feel it is not working because people are not aware of the accessibility of mortgages in Nigeria. In addition, the corruption in the system has also plagued the accessibility to mortgages in the country.”
According to him, there is a need to let people know where they can access mortgage loans and the government should make sure these loans get to the right people.
He claimed this would help bridge the housing affordability gap in the country.