A leading real estate expert, Mr. Timothy Gbadeyan, says high interest rates and low wages are among the major factors that make it difficult for most Nigerians to access a mortgage to own a home.
According to him, administrative bottlenecks, corruption and other issues 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, mortgages, a potentially realistic alternative, have been out of reach for many would-be homeowners.
With the dissolution of the Nigerian Building Society by the military government of Olusegun Obasanjo, the Federal Mortgage Bank of Nigeria was established as a direct government intervention to develop the mortgage industry in Nigeria.
However, more than 40 years later, access to mortgages for the average Nigerian worker remains 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 has made it difficult for the average Nigerian to access mortgages.
According to him, the government-controlled mortgage program, which is the National Housing Fund, is riddled with bottlenecks and conditions that will inevitably cause the process to stall after a long period.
He said: “Access to a mortgage in Nigeria is at an interest rate of around 17% or, in rare cases, 16%. If the bank wants to give you 14 million naira and your salary is 120,000 naira in a state capital like Osogbo for example. From this 120,000, your mortgage payment should not exceed N40,000. What kind of property will you buy so that N40,000 is able to cover your principal plus interest over a 10 year period? So when you look at a commercial mortgage as it is. It is beyond the reach of the masses. »
While noting that most of the work that needed to be done to reduce risks in the mortgage sector fell to the government, the expert noted that the rising cost of property development and the scarcity of titled properties in the country had also played a role. a contributory role to the challenges faced in the mortgage industry.
On why the mortgage industry is able to accommodate a larger fraction of the population in other climates, Gbadeyan said the industry in the Western world was created to promote “ease and fluidity”.
According to him, the interest rate on the mortgage in most developed countries is between four and six percent, which makes it relatively easier to repay these loans, especially since the earning capacity in these country is significantly higher compared to the average salary.
“When you look at the mortgage industry in the West, there are no mortgage banks. They have three players in their cycle – Mortgage Brokers, Mortgage Managers and Mortgage Lenders. Mortgage brokers are the ones who do the pre-qualification. They are like the marketers, they get all the details, do the necessary preparatory work and send it to the repairmen. The servicers are the ones who will finance the mortgage. They take the due diligence from the mortgage brokers, do their little checks and provide the funds.
“The third layer, which includes mortgage lenders, is like the market itself. The market finances it. They can just go to the market and raise bonds. They have different ways to fundraise. The fact is that our system is different. Here, what the mortgage broker and the managing agent do is what the mortgage banks do.“
“For many years we didn’t have a mortgage lender. It was on this basis that the Mortgage Bankers Association met with the Ministry of Finance and there were many engagements which led to the establishment of the NMRC. There are now other commitments which should lead to the establishment of two more bodies – the Nigerian Mortgage Guarantee Company and the Nigerian Mortgage Warehousing Company. Those are coming 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 main mortgage banks can then ask them for cash, but the situation is still different from what happens abroad in that for the main mortgage bank to ask cash to NMRC, she needs to give them a perfectible mortgage block. They must have created these mortgages for at least six months. Banks also cannot get as much funds as they want. They must meet a uniform underwriting standard.
“If you go to free rate updates and check rates today in the United States. It gives an average rate as low as 1.7 percent. In the western world, all mortgage rates are in the single digits The highest you will get will be in the range of six to seven percent This brings more people into the affordability bracket This is also because the Mortgage Agents funding source allows them to do so. In Nigeria people arrange money with mortgage bank up to 12% Even NMRC when they give money to banks their rates can go up to 12% So is it possible for n any mortgage bank to grant you a one-digit mortgage now? It’s impossible. The business of banks is the business of margins, of intermediation.
He further criticized systemic corruption in the country’s private and public sectors, noting that it had made the process of obtaining a mortgage loan, especially the government-funded mortgage programs, very difficult.
According to him, until global best practices are adopted in the country’s sector, alongside a significant shift in the average wage structure, the subject of mortgages will remain a distant reality for most Nigerians.
“What is the purchasing power in the West compared to Nigeria? This is a place where you will see a driver earn between $1,000 and $3,000. Teachers don’t earn that in Nigeria. If these issues are not addressed, whatever kind of inclusion you drive in Nigeria is going to keep a lot of people out of the bracket.
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