• Thursday, March 28, 2024
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BusinessDay

What CBN’s new mortgage guarantee company means to home buyers, mortgage lenders

Mortgage

As part of efforts to breathe life into Nigeria’s fledgling mortgage industry, the Central Bank of Nigeria (CBN) has initiated a move to float what it calls mortgage guarantee company (MGC) expected to change, significantly, Nigeria’s inaccessible and unaffordable mortgage loan story.

For reasons bordering on high interest rate, equity contribution and other stringent conditions, mortgage loans are inaccessible and unaffordable in Nigeria, especially by low-income earners who need mortgage the most to enable them buy, build or renovate existing properties.

But the new MGC is planned to change that narrative. The company, according to a CBN circular obtained by BusinessDay at the weekend, is expected to further deepen the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions.

In specific terms, the company is to support mortgage originators such as Primary Mortgage Banks (PMBs) and mortgage lending commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing against losses resulting from borrower-defaults on their residential mortgages.

It will also facilitate increased access to housing finance by reducing or replacing the requirement for equity contribution that would otherwise disqualify mortgagors from accessing mortgages, as required by the uniform underwriting standards.

The implication of this shared risks and reduced equity contribution is that it will encourage lenders to give loans to borrowers who, ordinarily, would not have qualified to take mortgage while, at the same time, encourage borrowers to take loans because both the risk and requirements are now less.

“The wider implication of this development is that it will not only bridge the housing demand-supply gap and increase home-ownership level, but also catalyse the growth of the country’s mortgage industry which, over the years, has suffered slow growth despite Nigeria’s large-size market,” according to Fredrick Ibidun, a mortgage market analyst, in an interview with BusinessDay.

Despite its large-size population, Nigeria trails its peers in terms of homeownership level. Whereas, home ownership level is 84 percent in Indonesia, 75 percent in Kenya and 56 percent in South Africa, it is only 25 percent in Nigeria whose population is estimated at 200 million.

This explains why a report on ‘The State of Housing Market in Nigeria’ estimates the number of renters in the country at 60 percent of the population who, the report notes, spend over 50 percent of their income on paying house rents.

Besides mortgage, Nasir el-Rufai, Kaduna State governor, says other major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to high cost of securing and registering secure land title.

However, expectation is that the MGC will address all these gaps. Adedeji Adesemoye, a deputy director, other financial institutions supervision department (OFISD) at CBN, had at a forum in Abuja, explained that MGC would facilitate giving mortgage to a borrower by a lender where an identified third party would take responsibility for the loan if the borrower defaulted.

He hoped that this would push up housing affordability because, once a borrower defaults, the third party receives a claim from the lender, pays the lender off, and assumes responsibility for the mortgage.

“A quality mortgage guarantee programme is used to provide credit loss protection to lenders in case of borrower default. The programme incentivises lenders to accept loans with lower down-payments, thus increasing affordability,” he explained further.

Ibidun notes that this was a good development because, according to him, borrowers who, ordinarily would not have qualified for mortgage loan by reason of their low income, could now obtain loans that enhance their affordability.

MGC is coming into limelight seven months after it was communicated to Nigerians. Though experts blame the delayed take-off on stringent measures for setting up one as no single application was received within this period, Adesemoye said the idea had been on course, only delayed by Covid-19.

The CBN circular notes that the financial requirements from a prospective company seeking licence is a minimum paid-up capital of N10 billion, non-refundable application N100,000, non-refundable licensing fee N1 million and change of name fee N50,000.

It also reveals that the CBN will be enabling the capitalisation of the proposed company with N7.5 billion, while the Nigeria Mortgage Refinancing Company (NMRC) will be investing N2.5 billion to make up the N10 billion required minimum equity capital for the setting up of the company.