Nathaniel Ajene

A safe, decent, and affordable home is fundamental to a family forging a path out of poverty. All over the world, affordable shelter leads to better opportunities for children and their parents. A home helps families find better health, financial freedom, independence, stability, and security that otherwise would have remained an illusion. This is why the United Nations made providing people with access to decent and affordable housing one of the targets under Sustainable Development Goal 11.

One of the notable challenges for achieving housing for all is housing affordability. It broadly means the ability of a household to own a home, paying no more than 30% of the household’s income for gross housing costs. Housing affordability comprises household income, house price, and finance terms. The confluence of low household incomes, high mortgage interest rates, and short tenors results in very low housing affordability for most Nigerians. In rare circumstances are, the cheapest newly built houses by private sector developers accessible to the majority of the population.

As a leading government housing institution, the Federal Mortgage Bank of Nigeria (FMBN) has recently taken innovative steps to tackle housing affordability and boost inclusion for all segments of the Nigerian population.

A Commitment to Housing Affordability

On the side of affordability, the Bank’s offers are a fine blend of low-down payment requirements, affordable pricing, long tenors, single-digit interest rates, and innovative homeownership options. Let’s start with down payment, the amount required at the outset of a mortgage transaction. In a market where mortgage lenders require 30 to 50 percent equity for home loans, FMBN pegs upfront payment for its loans at a maximum of 10 percent. FMBN’s home loans N5million and below attract zero down payment.

Only those above N5 million to a maximum of N15 million require a flat 10 per cent equity contribution. By removing the need for equity for loans below N5 million and drastically reviewing downwards the amount of money people need to save up and pay upfront for houses ranging from N5 million to N15 million, FMBN has lowered the bar of access to affordable housing for the majority of the Nigerian working population. As contributors to the National Housing Fund (NHF) Scheme, an essential requirement for accessing FMBN housing loans, Nigerians can get a N5 million loan without any upfront payments or a N15million loan to own a home by simply putting down N1.5 million. That is remarkable.

Other FMBN loan terms and conditions are equally designed to enhance housing affordability for low to medium earners. For example, loans can be spread and paid conveniently in monthly or quarterly installments over tenors of up to 30 years. This, however, depends on the beneficiary’s age and the number of remaining years in service.

The Bank’s interest rates are minimal, falling within the single-digit range of six to seven per cent per annum. This is significant considering that commercial mortgage rates range from 20 to 30 per cent and until recently, loan tenors were capped at ten years. Another equally important component of FMBN’s housing affordability strategy is its ability to innovate its products to meet the reality of the Nigerian worker’s financial situation. While inflation has steadily risen and the cost of living has skyrocketed, the incomes of civil servants who form the bulk of contributors to the National Housing Fund (NHF) Scheme have not recorded a proportionate increase.

The result is that for most Nigerians, their earnings are not enough to cover the cost-of-living expenses till the next payday; talk less of setting a portion aside for a down payment. Indeed, it is a hand-to-mouth situation for even those within the senior ranks. Statistics show that in many cases, eligible civil servants, and contributors to the NHF Scheme who got the FMBN housing loans requiring even the 10 percent revised down payment, found it an arduous task paying it up after successful profiling.

To fix this, FMBN introduced a rent-to-own scheme. The scheme eliminates the need for equity requirements from loan applicants. Beneficiaries, who must be registered contributors to the NHF Scheme and contribute 2.5 per cent of their monthly income for a minimum of six months, are allowed to move into FMBN-funded housing property as tenants. They can conveniently pay the house price in monthly, quarterly, or annual installments over 30 years at a single-digit interest rate of seven per cent. When they complete payment, they take full ownership of the property.

House price is also a key determinant of affordability. FMBN has also demonstrated an astute understanding of the need to build homes that fall within the price tags that its target beneficiaries can afford. The Bank pays adequate attention to matching housing types to income profiles of potential off-takers, the suitability and viability of project sites, proximity to access roads, livability, and other related amenities that will ensure completed houses are quickly occupied. Investigations show that FMBN-funded house types include apartments comprising one, two, and three bedrooms, one, two, and three semi and detached bungalows. Price tags range is as low as N3.2 million for a one-bedroom, N5.5 million for a semi-detached 2-bedroom bungalow, and to N7.5million for a 3-bedroom detached house.

A recent FMBN housing project that best typifies commitment to affordable housing pricing is the National Affordable Housing Delivery Project (NAHDEP). The project is a collaboration with the Nigeria Labor Congress, Trade Union Congress (TUC), and Nigeria Employers’ Consultative Association (NECA) to meet the housing needs of workers. The three bodies are the leading unions of workers whose 2.5 percent monthly contributions to the NHF Scheme essentially power FMBN’s operations.

The first phase of the scheme delivered over 1,400 housing units in twelve (12) sites across the country’s six geopolitical zones in addition to Lagos and Abuja, in batches of a minimum of 200 units per zone. The second phase is at different levels of completion and will deliver about 2,160 houses in another fourteen (14) locations. House types include finished semi-detached bungalows and 1-, 2- and 3-bedrooms in blocks of flats.

To keep the prices within the N3 million, N5 million to N8.5 million range for one, two, and three bedrooms, respectively, FMBN took deliberate actions to shave off major cost elements that increase a building’s price tag. First was the cost of land. In collaboration with the labor centers, the Bank engaged state governments as stakeholders, who agreed to provide a minimum of 10 hectares of land for siting the projects as part of their contributions to affordable housing for their citizens. Some state governors even opted to provide access roads, power supply, and associated infrastructure. The state governments contributed significantly towards keeping the building’s cost within range.

Additionally, the Bank commissioned the bills of quantities for the building designs to ensure that costs were kept within range. From the choice of tiles and interior finishing to roofing sheets, the Bank emphasized using quality but cost-effective materials that would provide the needed comfort while leaving room at a reasonable cost and allowing beneficiaries to undertake any additional improvements at their convenience.

Ensuring Access to Affordable Housing for All

FMBN has also introduced two new and innovative housing products that widen the net of people who can benefit from its services. This includes Nigerians living in Diaspora and those whose religious beliefs do not permit them to engage in interest-bearing transactions.

Consider the Diaspora Mortgage Loan, which the Bank partnered with the Nigerians in Diaspora Commission (NIDCOM) to float. The loan provides economically active Nigerians in the Diaspora the opportunity to register, participate in the National Housing Fund (NHF) Scheme, and access affordable mortgage loans of up to N50 million to own a home in Nigeria. The Bank designed the product targeting Nigerians living in the Diaspora above 18 with evidence of the regular flow of income.

Applicants are expected to contribute $150 (for beneficiaries earning $3,000 and below monthly) or $200 (for beneficiaries earning $3,001 and above monthly) respectively, for a minimum period of one year, after which they can apply for the mortgage loan through an accredited Primary Mortgage Bank. Key terms include a 30 per cent down payment, a single-digit interest rate of nine per cent, and a payback period of up to 10 years. The product creates a unique opportunity for Diaspora citizens to have a legal home in Nigeria that could generate income for them while preventing them from falling easy prey to relatives and friends in Nigeria.

The Bank has also flagged off an alternative mortgage financing window for Nigerians opposed to interest-bearing transactions. Its introduction of a non-interest rent-to-own scheme would enable Nigerians to own their homes using a mortgage without engaging in an interest-bearing transaction. FMBN developed the product to eliminate the challenges that eligible Nigerians who want to own their homes through the National Housing Fund (NHF) Scheme face because of the interest-based nature of the Bank’s existing housing products. The product uses a rent-to-own model that allows beneficiaries to move into FMBN and non-FMBN funded homes and conveniently pay towards full ownership using monthly/quarterly, or annual rentals.

The product’s financing structure is based on the non-interest financing contract of Ijarah Muntahia Bitamleek (Lease to Own). Under this arrangement, FMBN retains ownership of the property until the financing term ends or at any time during the lease period that the beneficiary wishes to purchase the property. The FMBN non-interest rent-to-own product is available to Nigerians who must be contributors to the National Housing Fund (NHF) Scheme. It covers both FMBN and non-FMBN funded properties with a maximum price of N15million. Beneficiaries have the options to pay to own the property in monthly/quarterly or annual rental installments over thirty (30) years depending on their age and years in service.

By prioritising affordability, expanding participation in the National Housing Fund (NHF) Scheme, and accessing affordable housing for Nigerians living in the Diaspora while providing alternative mortgage financing to those unable to leverage its housing products, FMBN is demonstrating a commendable skill. Such an approach is crucial to business resilience, achieving its mandate, and contributing its quota towards the government’s goal to meet the housing challenge.

Ajene is a housing policy analyst based in Lagos