First Bank of Nigeria Limited has developed two different packages to support the growth of mortgage subsector in the country. AMAKA IFEAKANDU looks at the bank’s commercial mortgage and joints mortgage financing and their impact on the industry
The housing need in Nigeria has over the years grown exponentially due to the increase in population while the affordability rate has continued to decline. Although, real estate construction and house acquisition are both capital intensive, hence the primary role of the mortgage market is to bridge the affordability gap by providing necessary funding under a system that allows a long term credit amortized periodically to suit a buyer’s pattern of income flow.
Nigeria reportedly has about 22 million housing unit deficit- an indication that the performance of the mortgage sub-sector in bridging the housing gap has been quite poor. This required an urgent need for injection of more funds in the mortgage sector to enable it provide affordable housing unit for the citizens of this country.
Without doubt, the Federal Mortgage Bank of Nigeria (FMBN ) was established as the apex mortgage bank in the country to supervise and control the activities of the mortgage institutions in Nigeria, issue licences to secondary mortgage institutions, and collect, manage and administer the National Housing Fund, among others.
Currently, Nigeria has about 34 primary mortgage banks licenced by the Central Bank of Nigeria to undertake the activities of mortgage financing, real estate construction financing, financial advisory services, drawing from the National Housing Fund for on- lending, among others.
Although the financial system of Nigeria has grown appreciably, the mortgage sub-sector has remained evolutionary for quite some time and still struggles to find space in a rather unwholesomely hostile environment of limited systemic exposure.
Contribution to economy
Available data shows that the mortgage market in Nigeria has been consistently underperforming with a contribution of about 1.13 per cent to the nation’s Gross Domestic Product (GDP) in 2019.
In 2020, the Nigerian real estate sector contracted by -9.22 per cent. However, available data shows that in 2021, the sector contributed 0.6 per cent to GDP and mortgages account for less than 1 per cent of total banking assets.
The poor performance of the mortgage sub-sector is as a result of the contributory effect of an array of issues which include the macroeconomic variables, housing affordability index, collateral and title perfection challenges, access to long-term funding from the capital market, cost of fund, cost of mortgage refinancing at the secondary market, judicial system, knowledge gap among the stakeholders, risk sharing mechanism between the primary and secondary mortgage markets, less industry-friendly policies, and a host of others.
Among these militating factors, issues associated to proper Widows Day: NGO charges govt to abolish discriminatory culture against widows are at the forefront, posing great threat to the survival of the sub-sector.
FirstBank supporting Mortgage financing
In a bid to ensure sustainable growth in the sector, First Bank of Nigeria Limited developed different mortgage packages to support the mortgage industry to enable it contribute its quota in the economic development of the country.
The bank offered two different packages namely commercial mortgage and joint mortgage.
The FirstBank Commercial Mortgage empowers small and medium scale enterprises to finance the acquisition of landed property for commercial purposes, while the FirstBank Joint Mortgage loan, enables you and your spouse or business partner to easily buy a property that either party can ordinarily not have been able to purchase as individuals.
So, Mortgages are instrumental in providing secured homes for millions around the world
FirstBank commercial mortgage loans are typically structured as a 20 or 25-year amortization with a 10-year maturity. The interest rate for commercial mortgage loans is set daily and is available from your FirstBank loan officer.
The bank understands that each loan applicant has different needs, and therefore does not have a “one-size fits all” loan structure. Instead, it focuses on listening to individual ideas and coming up with a solution, providing the one-on-one customer service you deserve.
According to the bank, if one plans occupying 51 per cent or more of the property’s space, he/she may qualify for an Owner-Occupied Real Estate loan. With loan package the individual business can enjoy lower rates and fees.
In addition, the bank offer an Owner-Occupied Commercial Line of Credit programme, which can provide flexibility and opportunities for growth by assisting with working capital needs, seasonal variations, and expansion opportunities.
FirstBank offers up to 90 per cent Loan-to-Value financing for certain owner-occupied commercial mortgage loans. The SBA 504 loan structure typically allows a customer to borrow 90 per cent of the total acquisition costs of a property, plus other costs associated with necessary improvements to the property.
Typically, FirstBank provides 50 per cent of these total costs via a commercial real estate loan and the SBA provides a loan for 40 per cent of total costs. The borrower is required to contribute the remaining 10 per cent of total costs.
For individual or company to access fund for commercial mortgage, the applicants must have been in their line of business for at least 5 years. Apart from having account relationship with FirstBank for at least 6 months, the source of repayment must be from business sales proceeds not rent.
The applicant will have Key Man Mortgage Protection Assurance + Comprehensive Insurance against Fire, earthquake and Tornado (FET). First Bank commercial mortgage loan is convenient means to finance working capital needs.
The applicant is expected to bring building plan approved by the relevant authorities
valuation report to be obtained for property to be financed.
Offer Letter from developer in cases of outright purchase, audited financial statements of the company and any other documents that may be required by the bank.
Under joint mortgage financing, the loan is flexible as it reduces repayment pressure due to the way it is structured.
The loan repayment is distributed between the spouses easing up repayment pressure and it has competitive interest rates.
According to the bank, applicants of the joint mortgage loan must be legitimate couples or registered partners and repayment capacity is on both applicants.
Loan obtainable is N70 million with maximum tenor of 240 months with 20 years subject to 60-year retirement age. It has minimum equity contribution of 20-30 per cent depending on the location, and the applicants are financially committed and are joint and co-owners of the property
For applicants for secure joint mortgage loan, they require documentation which include Consumer loan request form, status enquiry of employer form, last three to six months’ pay slips, three to six months’ bank account statement, three passport-size photograph, means of identification- driver’s License/international passport/national identification, utility bill of residence/company address, letter of recent remuneration, current account with FirstBank and letter of introduction from employer.
Under construction purposes, according to the bank, the party is expected to bring a copy of the approved building plan and the bill of quantities, provision of valuation report on the property and if there has been any construction on site, photographs of the property showing front, back and side views, equity contribution of 20 to 30 per cent of the property cost excluding cost of the land depending on the location, cash-flow projection on loan repayment.
For applicants applying for the outright purchase of the property, the bank said the applicants required vendor’s offer letter, copy of the title documents to the property as ownership must be in the name of the vendor.
Apart from providing copy of the approved building plan and copy of the bill of quantities/cost estimates, if the property is to be renovated, valuation report of the property and photographs of the property showing front, back and side views will also be required. They need to provide equity contribution of 20 to 30 per cent of the property cost excluding cost of the land, depending on the location and provision of cash flow projection on loan repayment
In all, the mortgage market thrives on the supply of adequate affordable housing for creation of risk assets while real estate market thrives on the supply of adequate funding for estate construction and for purchases, hence the indissoluble matrimony of the industries.
There is also need to strengthen the mortgage sub-sector through long-term funding and introduction of industry-friendly regulations geared towards the protection of investors. The government needs to consolidate, reduce all the land charges to encourage more title perfection, and enhance the operations of the real estate and mortgage markets. Charging of a fixed nominal fee for registration of interests of previous owners is encouraged so as to revive many dead capitals.