Owning a home is a capital-intensive venture. A combination of low wages and high cost of living limits the capacity of millions of Nigerians to save towards building or purchasing a house of their own. The result is a huge housing deficit estimated at between 17 and 22 million units.
To increase access to housing, many countries promote the widespread adoption of mortgages as the preferred path to homeownership.
Essentially, a mortgage is a loan that a financial institution gives an applicant to purchase a house with the good faith that the debtor will repay the loan with interest attached to the life of the loan.
Both the debtor and the lender benefit if nothing goes wrong. Over many years, the borrower repays the loan, plus interest, until he or she owns the property free and clear. Mortgages have helped millions of people all over the world to buy homes.
It is against this backdrop that the role of the Federal Mortgage Bank of Nigeria (FMBN) in promoting mortgage adoption in the country is so significant.
Established as a wholesale mortgage finance institution, FMBN provides primary mortgage banks with low-cost funds to enable them to provide affordable mortgages to Nigerian workers.
Notable features of FMBN mortgage loans include zero equity requirements for loans less than N5million, and 10 percent equity contribution for loans ranging from N5-15million. Others include single digit interest rates from 6 to 9 percent per annum and long payment tenors of up to 30 years.
FMBN’s housing products are available to contributors to the National Housing Fund (NHF) Scheme, a social savings programme designed to mobilize long-term funds from Nigerian workers, banks, insurance companies, and the government to boost access to affordable housing finance.
Take the FMBN National Housing Fund (NHF) Mortgage Loan, for instance. FMBN uses funds from the NHF scheme to give loans to accredited Primary Mortgage Banks (PMBs) at a single-digit interest rate of 4 percent.
The mortgage banks, in turn, use the funds to provide loans to qualified applicants at 6 percent interest with payment tenors of up to 30 years.
Loans under N5million attract zero equity down payment, those ranging from N5 million-N15 million require 10 percent equity and a worker is qualified to apply after six months of consecutive contributions to the NHF scheme.
Besides the NHF Mortgage Loan, FMBN has been innovating to ensure a match between its housing products and the financial capacity of an average Nigerian worker.
In the past three years, under the dynamic leadership of Ahmed Dangiwa, the bank developed and introduced two creative housing products.
First is the individual Home Construction Loan. The loan provides up to N15million at 7 percent interest rate to NHF contributors with unencumbered land, appropriate titles, and approved building plans to undertake self-construction. Beneficiaries can pay back over a period of up to 30-years depending on their age and number of years left in service.
Second is the FMBN Rent-To-Own Housing Scheme. The scheme makes it possible for beneficiaries to move into an FMBN-owned property as a tenant and pay towards ownership of the property in monthly or annual installments for periods of up to 30 years at an interest rate of 9 percent.
Another equally affordable home product that FMBN has upscaled within the past three years is the home renovation loan. The loan provides up to N1million to beneficiaries who already own their homes to carry out improvements.
Overall, to tackle the housing deficit, there is a need to increase mortgage penetration levels in the country, especially within the low-medium income segments of the economy. A low hanging fruit is to empower the FMBN to scale the size of its mortgage loans to Nigerians.
Contributed by John Mark Ikyaave, Abuja-based public policy analyst.