A leading real estate expert, Mr Timothy Gbadeyan, says high interest rate and low wages are among the major factors making it difficult for most Nigerians to access a mortgage to own a house.
According to him, administrative bottlenecks, corruption, and other problems will continue to make access to mortgage a mirage for the average Nigerian.
With access to affordable housing posing increasing challenges for most Nigerians in capital cities and other densely populated areas, mortgage, a potentially realistic alternative, has not been within the reach of many intending house owners.
With the dissolution of the Nigerian Building Society by the then military government of Olusegun Obasanjo, the Federal Mortgage Bank of Nigeria was established as a direct government intervention to expand the mortgage industry in Nigeria.
However, more than 40 years after, access to mortgage for the average Nigerian worker is no more than a pipe dream.
Gbadeyan, who is also the company secretary and head of Legal Services at Living Trust Mortgage Bank Plc, said the convoluted nature of the Nigerian mortgage industry had made it difficult for the average Nigerian to access mortgage loans.
According to him, the government-controlled mortgage scheme, which is the National Housing Fund, is riddled with bottlenecks and conditions that will inevitably cause the process to stall after an extended period of time.
He said, “Accessing mortgage in Nigeria is at an interest rate of around 17 per cent or in some rare cases 16 per cent. If the bank wants to give you N14m and your salary is N120, 000 in a state capital like Osogbo for instance. From that 120, 000, your mortgage payment should not exceed N40, 000. What kind of property will you be buying that N40, 000 will be able to service your principal plus interest within a period of 10 years? So when you look at a commercial mortgage as it is. It is outside the reach of the masses.”
While noting that most of the work that needed to be done to de-risk the mortgage sector lied with the government, the expert noted that the increasing cost of real estate development and paucity of titled properties in the country had also played a contributory role to the challenges experienced in the mortgage sector.
On why the mortgage industry is able to accommodate a larger fraction of the population in other climes, Gbadeyan said the sector in the western world was set up to promote “ease and fluidity”.
According to him, interest rate on the mortgage in most developed countries hovers between single digits of four to six per cent, making it relatively easier for such loans to be repaid, particularly since the earning power in such countries are significantly higher when compared to the average wage.
“When you look at the mortgage industry in the West, they don’t have mortgage banks. They have three players in their cycle -mortgage brokers, mortgage servicers, and mortgage funders. The mortgage brokers are the ones who carry out the pre-qualification. They’re like the marketers, they get all the details and do the needed groundwork and send it to the servicers. The servicers are the ones who will fund the mortgage. They take the due diligence the mortgage brokers have done, do their little checks, and provide the funds.”
“The third layer, which comprises the mortgage funders, is like the market itself. The market funds it. They can just go to the market and raise bonds. They have different ways of raising funds. The thing is that our system is different. Here, what the mortgage broker and servicer do is what the mortgage banks do.“
“For many years, we have not had a mortgage funder. It is on this basis that the association of the mortgage bankers met with the Ministry of Finance and there was a lot of engagements that led to the creation of the NMRC. There are further engagements now that is expected to lead to the creation of two more bodies – The Nigerian Mortgage Guarantee Company and the Nigerian Mortgage Warehousing Company. Those ones are coming up very soon. What we have now is Nigeria Mortgage Refinance Company.”
“The NMRC was created as a liquidity vehicle. They are the ones who go to the market to issue bonds and the primary mortgage banks can then request liquidity from them but the situation is still different from what obtains overseas in the sense that for primary mortgage bank to request liquidity from the NMRC, they need to give them block of perfectable mortgages. They must have created those mortgages for a minimum of six months. Banks cannot also get as much funds as they are looking for. They have to meet a uniform underwriting standard.”
“If you go to free rate updates and check the rates today in the US. It gives an average rate as low as 1.7 per cent. In the Western world, all mortgage rates are single digits. The highest you will get will be in the region of six to seven per cent. This brings more people into the affordability bracket. That is also because the source of funds for the mortgage servicers enables them to do that. In Nigeria, people fix money with mortgage bank for as high as 12 per cent. Even the NMRC, when they are giving money to banks, their rates are as high as 12 per cent. So, is it possible for any mortgage bank to now give you a mortgage at single digit? It’s impossible. The business of banks is the business of margins, of intermediation.”
He further criticised the systemic corruption in the country’s private and public sectors, noting that it had made the process of obtaining a mortgage, particularly the government-funded mortgage schemes, very difficult.
According to him, until the global best practices are embraced in the sector in the country, alongside a significant shift in the average wage structure, the subject matter of mortgage will remain a distant reality for most Nigerians.
“What is the earning power in the West compared to Nigeria? That is a place where you will see a driver earn between $1,000 to $3,000. Professors don’t earn that in Nigeria. If these issues are not fixed, no matter the kind of inclusion that you are driving in Nigeria, it is going to keep a lot of people outside the bracket.”