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

Business a.m. - - FINANCE & INVESTMENT - Ades­ola Afo­labi

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.”

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