Increasing access to mortgage loans

In spite of efforts by public and private sector operators in the mortgage industry to increase access to mortgage loans in Nigeria, only a few applicants can access such loans.

According to operators, the reasons for this low access, which are also why only 5 percent of residential houses in the country are in formal mortgage, include the high interest rate and high equity contribution demanded by mortgage lenders from borrowers.

With the launch of the Nigerian Mortgage Refinance Company (NMRC) by the Federal Government, expectation was high that there would be more access to mortgage loans, more so with the promise that the company would drag down interest rates.

Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance, said at the launch of the company that “NMRC is expected to pull down lending rates for housing from the current spread of 20 to 23 percent to the low double digits, or at least to a high single digit”.

Concerns, however, persist. The high equity contribution, usually as high as 30 percent of the value of the property, which mortgage lenders demand has been identified as a major hurdle to mortgage access by as many people as would want to.

On the other hand, mortgage banking operators explain that they demand high equity contribution as a hedge against loan repayment default, stressing that this contribution is as fundamental to mortgage lending as regular flow of income is.

Operators in the mortgage lending industry are of the view that the issue of equity was  fundamental because there were institutional and regulatory developments still being expected in the mortgage industry. They are worried that Nigerians are largely anonymous as there is no reliable data-base of Nigerians. The National ID Card remains in limbo, andforeclosure laws are still not strong.

These circumstances compelled mortgage banks to demand for equity contribution. If the banks had all the above issues resolved, they would give people mortgage based on their credit rating.

For the mortgage banks, operating mortgages in an environment where long term funds are scarce demands utmost care in order not to jeopardise depositors monies. For operators, the higher the risk in lending, the higher equity contribution required.

The increasing cases of job insecurity are also a condition that puts lenders on edge and make them seek for ways to hedge loss if such occurs. And one common way of doing so is to ask for high equity contributions.

While we decry the increasing practice of high equity contributions as condition for securing a mortgage loan, we appreciate the limitations of our lending environment. 

Thus, we urge the federal government to speed up the national identity card project and check the notorious anonymous status of Nigerians. 

Also, we suggest that mortgage lending institutions should seek creative and realistic ways of overcoming the hurdles in our lending environment without creating roadblocks for those who seek mortgage loans.