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Time is now for operators in the Nigerian mortgage sector to do a comprehensive review of both lending and borrowing conditions as economic situation in the country has worsened, leading to increased unemployment and reduced disposable income.
The world economy is still smarting from the impact of the global health emergency known as coronavirus. Many people have been laid off from their work-place while some others have had their pay cut. These have, expectedly, affected household income.
In other countries of the world where the mortgage system works, mortgage is readily available to people who need same and mortgage institutions give out loans for them to build, buy or renovate existing houses.
In Nigeria, the story is different. Many Nigerians, particularly those who need it, do not believe that there is anything called mortgage in the financial system, not necessarily because of its relative newness in this environment, but more because of its un-affordability and inaccessibility.
With rising unemployment and reduced income, ability to take mortgage has dropped significantly and this calls for a review of the borrowing conditions by putting aside some of the many demands which lenders make from borrowers. It also calls for fiscal policy changes, especially in interest rate.
As it is today, many people are so poor that those that are classed as the rich are just a small fraction of the society. Again, just a few people are on employment and within this group are so many that are under-employed.
For this reason and more, mortgage borrowing and lending has become a big issue for both the lender and the borrower. Interest rate on mortgage loan is not in any way different from the rate on commercial loans given by deposit banks.
Mortgage lenders still anchor their loans on good jobs with fat pay, meaning that a mortgage loan seeker is expected to be somebody in a good job or private business with an assured and regular stream of income. This has to change or reconsidered.
As against 6 percent interest rate and repayment tenor of 25-30 years, depending on the borrower’s age, mortgage lenders charge 18- 22 percent interest rate with a repayment tenor as short as 12-24 months.
The ever-widening housing demand-supply gap easily finds explanation in commercial interest rate charged on mortgage loans which makes such loans unaffordable to home-seekers. “Though the ability of banks to provide money for mortgage has changed on account of credit challenges in the financial system, mortgage affordability or the fundamentals for lending has not changed”, said Adeniyi Akinlusi, former CEO of Trusbond Mortgage Bank.
“The mortgage industry does not operate in isolation of the economy. Certainly, as an integral part of the economy, it has to be affected by the economic crisis. Nevertheless, the fundamentals for lending have not changed, meaning that if somebody has a good job with a financial institution or a multinational company, and the pay package is fat enough for him to afford a mortgage, the present crisis has not changed that affordability”, he explained.
The past few years have seen a number of mortgage products aimed at enabling subscribers own their own homes, but these products are yet to help reduce existing housing gap by increasing housing stock.
But experts say mortgage products offered by some mortgage banks are not the type that will make any impact on housing. Such products are commercial mortgages from which the investor wants to recover his money. It is just like someone else who has invested in any other venture. He has to recover his money because he borrows from the same place like any other person.
Mortgage products can make impact on housing only when there is government intervention and, in other jurisdictions, there is government intervention to make mortgage affordable to everybody, no matter the income level.
In developed economies, mortgage has been used to move the economy from being import-dependent to a producing and exporting one. Akinlusi said mortgage institutions need long term funds for housing finance, insisting that when there are enough funds to lend to property developers and to home seekers, the entire economy would be stimulated.
It is expected that by the time there are enough funds in the hands of mortgage institutions for long term loans to property developers, there will be a lot of property development activities and when this happens, a lot of other activities will be generated and the economy would be better for it.
“You can imagine when there are many developments going on at various parts of the country. The long term effect would be the development of industries and factories that produce building materials such as cement, rods, roofing materials, wooden materials, etc”, Akinlusi stated.
This will ultimately impact on the wider economy and your guess is as good as mine as to what follows when people have enough capital at their disposal. Definitely, investment is the next line of thought and, depending on the prevailing business environment and government policies, people will invest in anything including taking up mortgage loans.
