Adebayo Obajemu

Mortgage subscribers across the country are in for tough times given that they have to bear the cross of high interest rate which has shot up their monthly contribution.

Reports have it that many mortgage firms have allegedly repriced their interest.

Business Hallmark’s findings reveal that on account of inflationary trend and the high cost of building construction, these firms had no choice but to adjust their interest which is negatively affecting impacting many subscribers.

The first line of those affected are subscribers with Primary Mortgage Institutions (PMIs) and commercial banks that were forced to adjust their principal to cushion the effect of inflationary trend and the high interest rates.

Recall that the apex bank has in this year alone thrice adjusted upwards the interest rates . The CBN fired the first salvo of interest rate adjustment when it raised the rates to 13 per cent in May, then 14 per cent in July and 15.5 per cent in October, the highest ever in 16 years.

With this, it means subscribers paying monthly for mortgage would have to pay more in servicing the housing loans.

Adekanmbi Soboyejo, a subscriber with PMI told Business Hallmark, “Initially i used to pay N90,000 monthly but I now pay N150,000 monthly.”

Findings by this medium reveal the principal interest on housing loans from commercial banks has been upwardly reviewed and adjusted from 24 per cent to 26 per cent.

A staff of one of the deposit money bank told this newspaper that the interpretation of the new adjustment of the interest rate is that “if you are paying a specific amount every month based on the terms negotiated with your mortgage firm, it means you have to pay more.”

The cost of building construction is said to have negatively impacted on pricing of housing units.

Northcourt, a leading real estate investment firm, in its 2022 Real Estate Half Year Market Review revealed that the cost of building materials has risen between 14 to 55 per cent in the last one year.

In the said report, 50kg cement rose from N3, 500 last year to N4000; 9-inch block from N280 to N320; Aluminium Roofing Sheet (0.55mm) from N3,800 to N4,500; Cables (6mm/Coil) from N34,200 to N52,000, among other materials affected by the galloping inflation.

This skyrocketing cost has enormously affected the cost of building construction and exerted enormous pressure on developers and mortgage operators to adjust terms of agreement especially in cases where the housing units are yet to be delivered.

Gbemiga Temitope Adegboye, a senior consultant with EmpireWorld, a leading property management and consultancy company told Business Hallmark that said mortgage institutions have adjusted not for the construction costs but on account of inflation which he described as a new trend globally.

Adegboye noted that current estimate has put the country’s housing deficit at 29 million, which would require N21trn funding to bridge. Adegboye’s view is in tandem with the view expressed by the Bank of Industry.

Amidst the increasing deficit, the existing home owners are not finding it easy owing to the repricing of the loans by mortgage operators.

But operators have seen a silver lining in the recent approval of guidelines by the National Pension Commission (PenCom), allowing Retirement Savings Account (RSA) holders to access 25 per cent of their savings for residential mortgages .

According to Adegboye, this development would go a long way in mitigating the effect of skyrocketing inflation on subscription.

He said, “It is clear that mortgage institutions have been adjusting for construction costs, but yes for inflation, which is a global trend.

The CEO of Chrisrael Property, Pastor Omodara said the current situation where inflation and high interest rate have put pressure on mortgage subscribers is unfortunate, saying it is not easy on both the subscribers and mortgage banks.

He said, “For the banks, they are mostly affected by the cost of funds. Mortgage banks in Nigeria are not as liquid as commercial banks, in fact the majority don’t have capacity to self finance because they don’t have direct savings deposit products like their counterparts.

He averred that most mortgage banks rely heavily on internal funding from government bodies such as Federal Mortgage Bank and Nigeria Mortgage Refinancing Corporation or external bodies such as Africa Development Bank and International Monetary Fund.

“ I can tell you that some mortgage banks in some cases even source their funds from private organizations at higher cost. For mortgage subscribers, sadly, they bear the brunt when there is an economic downturn. High inflation reduces purchasing power and brings disposable income to almost zero or negative for most households.”

According to Omodara, while it is true that mortgage is normally structured to be a long-term instrument for home financing, typically 20-30 years with single digit rate in most developing and developed countries, in Nigeria, mortgage system is still at double digits which is priced too high.

“Our mortgages are double digits, which means a 15 to 20-year mortgage financing would have eaten the value of the asset 3x by the time you’re done paying off. That is a very high-risk endeavour. It is the reason Nigeria has one of the lowest mortgage penetration in the world, less than 1 percent, and we also have one of the lowest home ownership penetrations in the world, less than 15 percent.”

“My position with using mortgage as a financing instrument in Nigeria has always been a short-term approach; pay off the mortgage within five years. This will still be my advice to mortgage subscribers right now, if you have the means, even if it will require that you sell other assets, pay off the mortgage as quickly as possible in order to retain some value on the asset.”

Adegboye stated that when subscribers go into property business with the hope of owning a property at certain rates but along the line, as the construction is progressing, high inflationary trend has the tendency to make the initial subscription meaningless.

“If they are to pay in a 10-year term, the pace at which the naira is fluctuating might affect the expected returns. So, the interest rate now expected from the subscribers might have to be adjusted. Everything boils down to instability in the economy.

“Most of these funders have stable currencies but our own naira, within a few months, the value is not stable. So that affects projection and the issue of interest rate, the CBN is not helping matters. The CBN is under severe pressure because of scarcity of dollars and scarcity of foreign exchange.”

He also said the recent release of guidelines by PENCOM for mortgage subscribers to use part of their pension savings is a major decision that would ease pressure on both the subscribers and mortgage operators.

Omodara said administrative bottlenecks, high interest rate, 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 on account of high interest rate and inflation.

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.

According to Adegboye , 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.