Industry Expert lauds CBN’s move to establish mortgage guarantee companies

A PRIMARY MORTGAGE expert has lauded the move by the Central Bank of Nigeria to establish Mortgage Guarantee Companies (MGC) across the country.

The move was necessitated in an effort to promote mortgage financing and advance home ownership in Nigeria.

According to Federal Mortgage Bank of Nigeria (FMBN), Nigeria’s housing deficit as at 2017 is estimated at between 17 to 20 million housing units with a potential cost of N6 trillion ($16 billion), and a 900 000 annual unit deficit increase.

An MGC according to the CBN is a financial institution established to provide guarA antees or partial guarantee to lenders against losses resulting from borrower defaults on residential mortgage loans. It’s more or less like an insurance company for mortgages. Mortgage, on the other hand, is the ability to purchase a housing property and pay over a period of time.

The practice of mortgage in Nigeria is at best dismal as the Centre for Affordable Housing Finance in Africa (CAHF) puts mortgage finance in the country at 0.58 percent of its GDP, in comparison to the UK (80 percent), USA (77 percent), and South Africa (31 percent).

But, speaking to business a.m. on the introduction of MGC’s, an executive of one of Nigeria’s mortgage companies who pleaded to be anonymous said the move if implemented will strengthen mortgage businesses in Nigeria.

According to this executive, we don’t really practice mortgage in Nigeria. He said this is because, “there is nowhere in the world apart from Nigeria where double-digit mortgage in terms of interest rate is practised.

He explained that no mortgage house in the country gives out loans for more than 5 years as against the ideal global practice introduced by the FMBN.

The FMBN is Nigeria’s apex mortgage institution which promotes mortgage lending and manages the Nigerian housing policy by giving out single-digit interest loans of six percent spread across the borrowers’ present age minus 60 years (retirement age).

This loan according to our source is however difficult to access.

The CAHF in its “Housing Finance in Nigeria” report explained that although the FMBN’s housing scheme is open to all, the recruitment structure has mostly targeted larger establishments, recruiting middle income earners and ignoring the low income earners in Small and Medium Enterprises (SMEs), while some states, such as Lagos, Kano, Edo, Niger, have withdrawn from the scheme.

FMBN raises capital through the National Housing Fund (NHF), which obtains funding mostly by contributions from salaried employees earning N3 000 and above monthly, or 2.5 percent of their salary.

Contributors receive a two percent interest rate per annum and are entitled to apply for the NHF-sponsored loan. Up to N15 million can be borrowed, and the borrower must make a deposit of between 10 percent and 30 percent.

But with the introduction of the MGC, the gap with low-income earners will be bridged. “In terms of affordability, mortgage banks will easily give low income earners mortgages based on their income because there is a guarantee,” the mortgage expert said.

Prior to now there were two options for mortgages in the country, the commercial loans and the FMBN loans. The only option low income earners had to obtain mortgages was the 6 percent loan from FMBN, and to access the FMBN loans you have to be a contributor but these funds are not guaranteed.

The only funds that are easy to get are the commercial loans but they do not come cheap. The least a borrower could get is at 17 percent interest rate while some banks go as high as 23-25 percent per annum, and expect payment in 5 years because it is shareholders funds and people want their cash back.

But a guarantee for mortgage loans will facilitate easier and low interest lending from mortgage companies since risks have been lowered.

The expert further noted that with the MGC, the customers subscribing for the property would be paying for the insurance and not the mortgage houses, as the cost of guarantee will be embedded in customer’s interests. “Invariably, it’s a win-win for both parties, i.e. the mortgage banks and the customers.”