Increased housing affordability coming on CBN’s mortgage guarantee initiative

In no distant future, increased affordability will be coming into the Nigerian housing market on the back of Central Bank of Nigeria’s (CBN’s) new mortgage initiative known as mortgage guarantee programme which seeks to bring more home seekers into the mortgage net.

Affordability has always been a big issue in the Nigerian housing market because most of the people who need houses cannot afford them because Nigeria has one of the most expensive housing markets in the world. This is also a country where it is believed that mortgage is non-existent because what is available as mortgage is neither accessible nor affordable to over 70 percent of the population.

But a guaranteed mortgage is here. It is a mortgage given to a borrower by a lender where an identified third party will take responsibility for the loan if the borrower defaults. Expectation is that this will push up housing affordability because, with the new programme, 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”, explained Tokunbo Martins, Director, Other Financial Institutions Supervision Department (OFISD) at CBN, who spoke at the on-going Abuja International Housing Show in Abuja.

“Mortgage guarantee products incentivize lenders to accept loans with lower down-payments, thus increasing affordability”, she added. The implication of this is that borrowers who, ordinarily, would not have qualified for mortgage loan by reason of their low income, can now obtain loans which enhances their affordability.

In most cases, the national government is the driver of any successful mortgage guarantee programme which they administer through either a government agency, a private entity or a hybrid encompassing both types of entities.

The programme comes with a lot of benefits and, according to Martins, its importance in Nigeria cannot be over-emphasized given that this is a country where typical down-payment is over 20 percent with extremely high additional costs for regularization, titling and other home buyer responsibilities.

“Mortgage guarantee in our market will also be used as a valuable tool to regularize and standardize the market in every area from documentation to underwriting to collateralization and mortgage dispute resolution. These are major issues we need to resolve”, she advised.

Essentially, mortgage guarantee is a product of great value to any housing market because it is a tool of opportunity for both the supply and the demand sides of the mortgage market and Martins notes that it provides potential opportunity of lower down-payment for borrowers, while opening up a larger market for lenders who make the decision to finance the target population for the programme.

Martins highlighted the main benefits of the programme as increased access to housing finance, access to higher amount mortgages, better loan terms (rate, term etc), market standardization and increased consumer literacy, more stable property values, and more stable and improved national housing sector leading to better economy.

She stressed that a major benefit of the programme is its capacity to encourage the influx of investor funds – both local and international, explaining that a well-executed mortgage guarantee programme provides comfort to intending investors by signaling the presence of standards in the industry that could reduce the risk of losing their invested funds.

The good news on this programme is the role being played by the Nigeria Housing Finance Programme (NHFP). This is a programme daily implemented by a Project Administration Team (PAT), domiciled in thde OFISD at CBN.

NHFP, which is the result of a PPP between the Federal Government, CBN and World Bank, is working in collaboration with its stakeholder partners currently in the feasibility study stage of establishing a pilot company, to be known as The Nigeria Mortgage Guarantee Company (NMGC). “This effort is meant to offer Mortgage Guarantee in Nigeria”, Martins revealed.