Tackling illiquidity and high cost of funds in mortgage system

The mortgage system in Nigeria is a weeping baby troubled by two major factors, namely illiquidity which characterises the operating primary mortgage banks and other mortgage lending institutions, and the high cost of funds which is a cankerworm eating deep into the entire financial system.

Several interventions in the mortgage market by the government with the aim of raising liquidity and making funds available for borrowers are yet to yield the desired fruit. The National Housing Fund (NHF) which was set up with the purpose of making mortgage borrowing a lot easier at 6 percent interest rate for low income earners remains an amorphous and elusive entity too difficult to access.

The coming of the Nigerian Mortgage Refinance Company (NMRC) was another bold step by the government towards raising the liquidity level in the mortgage market, but four years after close mortgage market watchers are becoming uncomfortable, wondering if the company is out on experiment.

But that thinking may be borne out of lack of clear understanding of what the company is, or what it is doing at the moment, or both. Its promoters, on their part, are betting on their commitment to raising the game in this sector of the financial system with a view to making mortgage accessible and affordable by a good number of Nigerians who need it.

In spite of all these, many people don’t know much about this company, hence this effort at bringing to the fore a few things an average Nigerian, especially a home-seeker, should know about the company.

NMRC was launched into the financial system by the Federal Government under former President Goodluck Jonathan four years ago as a response to the illiquidity and the high cost of funds in the mortgage system. This, many believe, is styled after the Fannie Mae in the US.

A company conceived by the government but led by the private sector, NMRC was set up solely to drive liquidity into the mortgage system by refinancing mortgages originated by primary mortgage lenders. It is also aimed to create jobs and enable development of low income housing, among others.

Reduction in Mortgage Rate: All other things being equal, the highpoint of this is that the current mortgage rate that fluctuates between 20 and 25 percent in the country will drop to between 9 -14 percent and what this means is that more people will be able to access mortgages and pay within a relatively convenient 20-year period.

Affordable Housing: It has always been argued that the transactions in Nigeria’s housing sector account for just about 5 percent of the market potential and this is even within the luxury-high-to-mid market. The reason the remaining 95 percent is left out is because there is no effective demand here due to high interest rate on mortgages, unemployment and job insecurity. But with the NMRC, it is hoped that a substantial number of people in the mid-low will become landlords.

Jobs, jobs and more jobs: It is estimated that Nigeria requires an average of one million houses annually for the next 17 years to be able to meet its housing needs. However, the NMRC estimates an annual 75, 000 homes with an attendant 30,000 direct and 488,000 indirect jobs after the initial project period. What this means is that those who can’t afford a lease-to-own house now can afford, at least, a decent living.

For the real estate industry, the coming of NMRC has strengthened the industry and with re-capitalisation of the Primary Mortgage Banks (PMBs), the company is working on implementing one of its objectives to raise the number of completed mortgages from the current 20,000 units to 200,000 units. These will see other sectors such as development, manufacturing, designing; services and construction do more businesses in the years ahead, thereby increasing the industry’s contribution to the nation’s economy.

All things being equal, it is expected that NMRC will create an investor-friendly market, leading to the inflow of foreign direct investment (FDIs) in residential housing as they are currently doing in the commercial space. The ability of the mortgage sector to regenerate more funds from the NMRC pool as they raise mortgages will also excite local investors.

New skills, innovation: This new direction in the mortgage market will definitely come with demand for innovations. One of such innovations will be the much debated alternative building solution. Also, local artisans will be required to step up their games in terms of skill set and delivery, as activities in residential and commercial sector simultaneously will require more efficient way of working. Also, brokerage services which are already going digital will require new skill to manage multiple customers with different demands.

As for the economy, there will be increased GDP because an economy that can create 30,000 jobs annually will definitely not suffer growth problem. If more jobs are created through the construction industry, the impact will be felt. Also, the present low contribution of real estate to GDP will give way to a refreshing new figure.

NMRC is not an old wine in a new bottle. Though it is not a perfect scheme because it is not going to put a roof over every head, particularly the lower end of the market, NMRC partners real estate developers to develop mass housing and rent-to-own scheme which enables Nigerians to own the homes they rent.

Chuka Uroko