For many years, the mortgage sector in Nigeria has suffered slow growth and that has, one way or another, impacted the housing sector to a point where majority of the people, especially the low- income earners, cannot buy or build their own homes.
In several ways and under various circumstances, attempts have been made to move the sector from point A to Point B for growth and development.
The establishment of the federal mortgage bank Nigeria (FMBN), the National Housing Fund (NHF) and the federal housing authority (FHA) is part of government’s efforts at increasing housing stock and improving accessibility and affordability.
Mortgage is a very important sector of any economy. It is a growth enabler that has a lot to do with housing. Globally, especially in advanced economies, mortgage has chicken and egg relationship with housing Each is as important as the other and it does not matter which of them comes first.
It is the surest and most convenient route to homeownership. But mortgage has not been a success story in Nigeria despite the country’s huge population which should have been a growth catalyst.
Consistent with its mandate to increase liquidity in the mortgage system and lower interest rate, the Nigerian Mortgage Refinance Company (NMRC), which is one of government’s latest effort at growing the mortgage system, has visited the capital market twice to raise funds.
As at December 2018, it has raised N18 billion with which it refinanced loans of some primary mortgage banks (PMBs) and other mortgage-lending institutions.
Expectation was that the refinancing of an estimated 1,045 loans presented by about 12 benefiting PMBs would create a significant impact on both the mortgage and housing sectors in terms of increased loan disbursement to home seekers and a rise in homeownership level.
But that has not happened and is not happening, meaning that there is something fundamentally wrong with the mortgage system. Though operators complain of difficult business environment and macro-economic issues reflected in high interest rate and unaffordable property prices, it is not hard to see the downsides of the entire mortgage system.
Besides the opaqueness or lack of clarity, growth in the mortgage system in Nigeria is also clogged by lack of accessibility and affordability. In terms of clarity, there is no unified system. There is no known government-backed mortgage rate which the mortgage banks have to buy into or a mortgage standard or process which the banks have to fit into.
The basic principles of mortgage is that a loan seeker must have steady income and in gainful employment. He must be able to provide income in multiples for the property that he seeks to buy. But the challenge of job insecurity and low income level remain such that mortgage lenders are hesitant in advancing loans to workers, especially the low income earners who need the loans most.
Sustainable mortgage models are, therefore, needed not only to stimulate growth in the fledgling system, but also to bridge the country’s widening housing gap. The Singaporean model which involves creating a pool of funds into which everybody contributes monthly and from which everybody borrows to buy a flat or house is a good way to go.
This model succeeded not by magic but because the government, under Lee Kuan Yew, the country’s first Prime Minister, was determined, through a deliberate policy, to make that model work.
The model, apart from creating jobs and transforming huge swathes of urban sprawls and slums into well-planned cities as it did in Singapore, it also has the potential to grow the economy. Singapore was a poor island in Southeast Asia, but evolved from a third to first world economy between 1965 and 2000 just because of this and similar policies.
Implementing this model in Nigeria would simply require remodeling or re-engineering the already existing but largely flawed National Housing Fund (NHF) which gives, where it works, single digit interest rate and longer repayment period of between 20 and 30 years, depending on the age of the subscriber.
Setting up a body that subsidises mortgage like the building society in England is another good approach to mortgage growth in Nigeria. This delivers mortgage either through banks or by itself.
It is possible to start changing the narrative in the Nigerian mortgage system by adopting models that work in other economies but this would require strong institutions and determination. This means that legislations around mortgage has to be fine-tuned, implemented and advertised so that people can access it.