Mortgage access still low as lenders insist on high equity contribution

In spite of efforts by public and private sector operators in the mortgage industry to increase access to mortgage loans in Nigeria, only a few applicants can access such loans, close watchers of the industry have observed.

According to them, the reasons for this low access, which are also why only 5 percent of residential houses in the country are in formal mortgage, include the high interest rate and high equity contribution demanded by mortgage lenders from borrowers.

With the launch of the Nigerian Mortgage Refinance Company (NMRC) by the Federal Government, expectation was high that there would be more access to mortgage loans, more so with the promise that the company would drag down interest rates.

Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance, said at the launch of the company that “NMRC is expected to pull down lending rates for housing from the current spread of 20 to 23 percent to the low double digits, or at least to a high single digit”.

Concerns, however, persist. The high equity contribution, usually as high as 30 percent of the value of the property, which mortgage lenders demand has been identified as a major hurdle to mortgage access by as many people as would want to.

On the other hand, mortgage banking operators explain that they demand high equity contribution as a hedge against loan repayment default, stressing that this contribution is as fundamental to mortgage lending as regular flow of income is.

Toyin Banjo, former managing director and chief executive officer, Cornerstone Mortgages (mortgage bankers), confirmed to BusinessDay that the issue of equity was  fundamental because there were institutional and regulatory developments still being expected in the mortgage industry.

“We don’t have a sound data-base of Nigerians; the National ID Card remains a flop and foreclosure laws are still not strong,” he said, adding that all these things had compelled mortgage banks to demand for equity contribution.

If the banks had all the above issues resolved, they would give people mortgage based on their credit rating, he said, further pointing out that because the banks do financial intermediation, it was their responsibility to protect depositors’ money.

“For them to protect those deposits, they have to ask for something that would act as a back-up to the money they give out to borrowers,” he emphasised.

Another mortgage banker, who pleaded anonymity, said there were issues of trust and risk associated with high job insecurity at workplaces, explaining that most times the equity contribution demanded from a borrower depended on his perceived risk level.

“If the borrower is perceived to be of high risk level, the equity demanded of him is usually high, because you have to guard against default or incapacitation in terms of job loss, etc,” he said, adding that the tenor of a loan could also determine the equity contribution demanded from the borrower.

“The banker and the borrower are in the same market, in which case both suffer a common problem; we should not forget that we are all trading in one commodity, which is money, and the trading is done in such a way that you sell according to how you buy. The credit the banks, including the mortgage institutions, have are short term in nature. So, they can’t lend in long term and we do business in an environment that is very costly,” he added.

A chief executive of one of the primary mortgage banks (PMBs) who did not want to be named told BusinessDay that their pre-occupation at the bank was how to achieve single-digit interest rates on mortgage loans.

“Our objective is working towards bringing the cost of mortgage in Nigeria to single-digit interest rate. That is our long-term objective. But first and foremost, let’s have a very strong mortgage industry in the country and begin to get proper funding, such that we can lend single digit. We are working towards that,” he said.

“It remains our goal and it is something we would like to work with the relevant authorities and key stakeholders in the industry like the mortgage operators, the Central Bank of Nigeria (CBN) and the Federal Government, to ensure that mortgages are affordable,” he added.

In spite of the challenges of the industry which border on long-term funding, the CEO was confident that the industry would get to where it should be, pointing out that the funding issues would definitely be solved as the industry matured.

Chuka Uroko