Need for legislation on mortgage process to bridge housing gap

For the growth of the mortgage market and bridge housing gap in Nigeria, there is need for legislation towards mortgage process, but this will depend on how the legislation is applied. In some countries, what happens is that a body is set up that manages mortgage subsidies.

This body delivers the subsidies either through banks or by itself. So, the legislation around mortgage has to be fine-tuned, implemented and advertised so that people can access it.

But, for this to happen in Nigeria, the mortgage industry has to improve, and developers have to be encouraged to build mortgage-viable and ready properties; mortgage interest rates have to be reduced to single digit and made available; the whole process of securing mortgage has to be made clearer and more transparent.

Mortgage has to be available on retail high street such that every time you go out looking for it, you see it. In addition, developers should be encouraged to build across all property bands, simplicity needs to be introduced into the regulatory system to make it cheaper and faster to develop.

The import system needs to be tidied up to be faster, more efficient and less punitive to the building trade by allowing quality products in without attracting huge duties and red tape. This simplicity will reduce the cost of housing, making it affordable to more buyers including low income buyers.

Furthermore, the government needs to find ways to make land more of a commodity—easy to ascertain ownership, cheaper to transfer and designate large areas for social housing by ensuring developers can build for a certain sector without heavy land costs.

Frequently, housing deficit is linked to undersupply of housing relative to demand. Seldom do people look deeper to see how closely housing deficit is linked to unemployment through the interplay of a functional mortgage system.

In Nigeria, there are two major issues that have to do with the country’s housing deficit, estimated at 20 million units. The first is lack of a functional mortgage system while the second one is the absence of a social security system. There is an absence of a system that is dedicated to funding housing for low income families.

Ultimately, a mortgage system is only as good and functional as employment rate in the country. This means that even if a country has a viable mortgage system and the unemployment rate is very high, the system cannot solve any problem. This is because people have to be gainfully and sustainably employed to qualify for mortgage. Good employment with regular income is a basic requirement for mortgage.

For that reason, governments need to come up with a comprehensive policy that recognises the average family household income and designs a mortgage product as well as a grant aided system that meets the real challenges in society. This will increase developer activity and increase supply, thereby increasing employment and reducing cost of ownership or use.

It needs to be pointed out however that there are some basic problems with the mortgage system in Nigeria. One is accessibility and the second one is clarity. Talking about accessibility, when a borrower approaches a mortgage bank for loan, the bank will ask him for things that he cannot provide, meaning that mortgage is simply not accessible for those that actually need it.

In terms of clarity, there is no unified system. There is nowhere the government has published a mortgage rate which the mortgage banks have to use or a mortgage standard or process which the banks have to fit into. It is obvious that there is no clarity in the mortgage system here and if there is any such thing, it is not yet publicised and so people don’t know and, if people don’t know, it means such a process does not exist.

The basic principle of a mortgage is that a borrower must have steady income and be in gainful employment. He must be able to provide income in multiples for the property that will be built for his use. If his income is N4 million per annum, for instance, and the cost of the property is N30 million, unless he wants to steal, he cannot afford that property and there is no mortgage for him at that rate given his income.

In Metropolitan Lagos, most two or three-bedroom houses are sold for between N30 million and N60 million, yet the average yearly income of the white-collar worker is under N6 million. This means these properties are clearly out of the reach of the average buyer. It follows that, unless the supply side is subsidised, or the demand side is grant-aided, the market will remain untenable and the benefits that a community or society gains from a large and broad home ownership base will be eluded.

With this comes the inability to access consumer finance, home based loans and a fluid, dynamic retail financial system that encourages buying power, creates trade and boosts the local economy.