Mortgage Questions and Answers

1. Over the years, mortgage does not seem to have enjoyed the kind of popularity in Nigeria, why is this perpetual low awareness or acceptance?

There are basically two issues here; one is Awareness and the other is Acceptance. Let us first address Awareness. The Mortgage Banking Association; its Constituent Member-Mortgage Banks and Mortgage Brokerage Companies and Other Major Stakeholders in the Sub-Sector such as the Federal Mortgage Bank of Nigeria (FMBN) and Nigeria Mortgage Refinance Company (NMRC) Plc had made strenuous efforts to create awareness on Mortgages. For instance, the Sub-Sector Stakeholders regularly organize Training Programs and Exhibitions as awareness campaigns. Individual Mortgage Banks, and we have about 33 of them had also employed different strategies such as influencer marketing, search engine optimisations, online adverts as well as the conventional marketing strategies to enhance the visibility of their brands, ultimately creating awareness on Mortgage Products and Services. But we do agree that there is still a ample room for improvements at both the individual Mortgage Banks, Association and the entire Sub-Sector levels.

Regarding Acceptance, some Nigerians who are eligible for mortgages are reluctant to take up one because of the unwillingness of Nigerians to utilize credit due to lack of Credit Utilization Culture in Nigeria, which is a serious constraint that has hitherto limited the mainstream adoption of mortgages among qualified borrowers. Nigerians generally do not have the culture of utilizing Debt to create Wealth, especially those who have the financial capacity and credibility to repay.  Such category of people would rather effect 100% payment for a commodity/service in Cash or shy away from purchasing the items they could not pay for. While most people deliberately avoid taking up mortgage facilities, those who did so would rather prepay their mortgage debt than risk losing their homes with the collateral social stigma of repossession. The implication of this is that even when mortgage loans are available, some people still shy away from taking that route, for cultural and other financial reasons.

In such circumstances, even while we are striving to do our best to create awareness of the activities of the Mortgage Banking Sub-Sector and the Mortgage Banking Association, the aforementioned factors also have effects on the collective efforts.

2.If you have the figure, what is the mortgage penetration in Nigeria?

In practical terms, Mortgage Penetration in Nigeria is below 5% but Homeownership is slightly higher at a little over 25% due to some of the reasons mentioned earlier, coupled with associated issues of Affordability.

3. (What) Is the Association of Mortgage Banking in Nigeria doing about this or is it a task for the Banks and the Government?

Increasing Mortgage penetration is an enormous task that involves both the End users (Prospective Home-Owners), the Loan Providers, the Regulatory Agencies as well as Governments at various levels. All these critical Stakeholders have crucial parts to play in the process. Mortgage Banking Association of Nigeria represents a segment of the Mortgage Loan Providers and the Association and its Constituent Members are making intensive efforts towards remarkable and significant improvement in mortgage penetration in Nigeria. One of our strategic initiatives in this regard has been the development of the Uniform Underwriting Standards (UUS) for the Formal and Informal Sectors as well as Non Interest Housing Finance and Diaspora Mortgages. The Informal Sector comprises of the Segments of the Populace that are Self-Employed and Entrepreneurs mainly the Micro, Small and Medium-Scale Enterprises (MSMEs) as they constitute over 60% of the Economy in Nigeria. They are referred to as Informal Sector because in spite of their substantial contributions to economic growth, their activities were initially difficult to measure or quantify until the advent of the Uniform Underwriting Standards (UUS). In Year 2018, the Federal Ministry of Budget and Planning reported that the SMSEs contributed more than 58% to the Country’s economy.

In our collective efforts to increase mortgage penetration, MBAN and its Stakeholders, in collaboration with the Central Bank of Nigeria(CBN) through the former Nigeria Housing Finance Program (NHFP) developed the Uniform Mortgage Underwriting Standards for the Informal Sector to extend the reach of Mortgage services to Citizens in that category; because continuing denial of access to mortgages amounted to neglecting a potentially huge market. The UUS were also to ensure that global best practices are adhered to in Mortgage Loans Underwriting for this category of people and also to ensure that mortgages created are in compliance with the NMRC Refinancing Criteria. The Underwriting Standards clearly spell out the Eligibility Criteria for Borrowers in the Informal Sector, and they are regarded as unique and innovative because of having employed homegrown methods to ascertain the credit worthiness, financial capacity and capacity and willingness to repay by the underwritten customers.

In co-operation with PENCOM, MBAN has also been very successful in its advocacy for the Withdrawal of 25% from RSA Accounts as Equity Contribution to Mortgage Loans by Contributions in the Contributory Pension Scheme (CPS) as an intervention to make Mortgages more affordable and ultimately enhance mortgage penetration in Nigeria.

The Federal government had also contributed towards increasing mortgage penetration in  Nigeria through initiatives such as ‘My Own Home” which was  an offshoot of the former Nigeria Housing Finance Program, a Public-Private Partnership (PPP) initiative designed to enhance the extension of mortgage and housing micro finance to Citizens in the Informal Sector as a priority; as well as Low and Middle-Income Employees in the Public and Private Sectors as part of efforts towards increasing access to housing finance and enhancing mortgage penetration in Nigeria.

4. Nigeria is said to have about 28 million housing units deficit, do you think an affordable Mortgage Scheme could have helped to bridge the gap significantly?

In the first instance and as an Association, we have no empirical evidence to support the Housing Deficit Figure. However, affordable mortgages would definitely bridge the housing deficit to an extent, but we must emphasize that Mortgages alone would not adequately address the challenge of housing deficit as other issues such as of Supply of Housing; Property Titling and Title Transfer etc, are critical, fundamental and germane to addressing the Housing deficit. The Housing deficit became protracted in the first instance, largely because of insufficient supply of housing which was spurred by exorbitant prices of land (especially in urban centres), expensive building materials and dearth of housing production strategies. As soon as the supply of affordable housing increases gradually, steadily and consistently on Economies of Scale for 7 – 10 years, the natural dynamics of demand and supply would set in and over time as supply meets up with demand, housing units would become readily available and consequently more affordable. As a result and to effectively address housing deficit, the Entire Housing Construction/Real Estate, Mortgage Banking and Housing Finance Sectors as well as the Macroeconomic Fundamentals in the Economy would require concerted efforts to address shortage of Housing Supply and deficit.

5. One of the challenges that have been identified is the high interest rate and Banks’ refusal to give long-term loans, which is synonymous with mortgage. How can this be addressed?

Addressing high interest rate is a critical macroeconomic issue of fundamental nature that is outside the control of either the Mortgage Banks or the Mortgage Banking Association of Nigeria. But the Association has been on a consistent and constructive advocacy with the Central Bank of Nigeria (CBN) as the Statutory Regulatory Agency for the Mortgage Banking Sub-Sector, as well as Other Stakeholders for an effective resolution of the issue of High Interest Rate on Mortgage Loans.

Concerning the issue of Bank’s Refusal to grant long-term loans as you mentioned above, there is the need to understand that in Nigeria, there are different Categories of Licensed Banks such as Commercial Banks, Mortgage Banks, Micro-Finance Banks, Merchant Banks and Development Banks etc. serving different purposes and having different mandates,  But it is pertinent to mention that Commercial, Mortgage and Microfinance Banks are regarded as DEPOSIT MONEY BANKS (DMBs) by the CBN; and in direct response to your question, by the nature of their business, Commercial Banks are particularly more suited to granting Short-Term Loans while Mortgage Banks on the other hand have been purposely licensed by the CBN to grant Long-Term Loans for Homeownership and Rent-to-Own Finance for housing purchase. And in line with their mandate, the Operating Structure of the Mortgage Bank is designed to grant Mortgage Loans with Tenor up to 25 years on average to Customers. So while it is possible that a Commercial Bank might shy away from Long-Term Loans, we can emphatically state that Mortgage Banks in Nigeria grant loans that are usually between 20-25 years in Tenor. With the establishment and successful Operational Take-Off of the Nigeria Mortgage Refinance Company (NMRC) Plc, Mortgage Banks have been enamored to grant Mortgage Loans of up to 25 years to qualify as Conforming Mortgages for Refinancing by NMRC. Therefore, Banks’ refusal to grant Long-Term Loans could definitely NOT be associated with Mortgage Banks in Nigeria.

6. Real Estate Sector is facing challenges like consumers’ dwindling disposable income and inadequate mortgage facilities, to what extent have these affected home ownership in Nigeria?

 The issue of dwindling Consumer’s Disposable Incomes could be attributable to a combination of Domestic and Global Phenomena such as decreased economic growth from the Ukraine War, COVID-19 Pandemic and its aftermath as well as Domestic Inflationary, pressure which had spanned from Year 2020 to-date. The phenomena had affected every facet of the economy in Nigeria and not limited to the Real Estate Sector alone. No doubt, it has had its deleterious effects and impact on homeownership, but there are predictions that the Real Estate Sector would gain traction from Year 2023.

7. How crucial is the mortgage industry to the development of the Nigerian real estate sector?

The Real Estate Sector is an important component of any economy because of its unique linkages with other Sectors especially the Financial Services Sector; and this provides the nexus between Real Estate Sector and the Mortgage Banking Sub-Sector. The growth of Real Estate Sector across the World is generally driven by the Residential Real Estate Portfolios which are far the largest components of Real Estate Sector, accounting for over 79% of all Global Real Estate Value.  This is so because in all Developed as well as some Developing Countries, Residential Real Estate leverages on Mortgage Financing. Therefore, the Real Estate Sector, particularly the Residential Real Estate should have a proportionate effect on Mortgage Banking Sub-Sector and vice versa. Housing is highly capital intensive and Mortgages usually provide the avenue for Households to buy/own their houses and thereby create Store of Wealth. Logically, one could say that Mortgage Banking should thrive to the extent that Residential Real Estate is thriving and growth in Residential Real Estate Sales should translate to proportionate growth in the contribution of Mortgage Loans to the Gross Domestic Provider (GDP) of the Country. However, that same statement of fact could presently NOT be made regarding the situation in Nigeria because an efficient synergy between these Two Sectors is yet to be fully developed. Currently, the Real Estate Market essentially runs on Cash or Short Tenor Loans (1- 2 years or 5 years at most). Most residential properties are purchased in Cash among those with the wherewithal, thus impending the creation of huge Mortgage Loans Portfolio, and development of the Mortgage Banking Sub-Sector.

8. What specific things should the government do to create an enabling environment for Mortgage Banking to thrive?

1.We need to affirm that through the Central Bank of Nigeria and the Federal Ministry of Finance, the Federal Government had made tangible contributions to the development of the Mortgage Banking Sub-Sector in the establishment and successful take-off of Nigeria Mortgage Refinance Company (NMRC) Plc. However, there is still a vast room for so much that could be done, especially in creation of conducive Legal/ Regulatory Framework and macroeconomic fundamentals for Mortgages to thrive and become more Affordable.

2. Lower Cost and Time for Property Titling/Title Perfection: It has also become imperative for the Governments to enact Laws/Regulations to provide a strong legal foundation for the Mortgage System of Financial Intermediation, such as the issues of Lower Cost, Time and Procedure for Land/Property Titling and Registration which need to be comprehensively addressed.

• Also, the issue of Interest Rate on Mortgages needs to be fully addressed as a matter of urgency

9. Low-Income earners have largely been at the receiving end, how can they also benefit from mortgage, especially with the way the economic situation has eroded people’s income?

 As mentioned earlier, the Mortgage Banking Association of Nigeria and its Major Stakeholders have made significant interventions to extend access to Mortgages to by Middle Income Class through the Uniform Mortgage Underwriting Standards’, the 25% RSA Withdrawal for Equity Contribution to Mortgage Loans as well as Other Government initiatives like ‘My Own Home’ Project, that were specifically designed for the Middle-Income Groups and given more time, their impacts would be adequately felt by the Citizens.

The Stakeholders are also working assiduously in Partnership with the various Governments in the Federation towards Social Housing Scheme that would effectively address the Housing Needs of the Low Income Class in Nigeria.

10. You have had robust banking experience in top banks outside the country. What can Nigeria learn from advanced economies in terms of affordable mortgage and an improved real estate sector?

The interesting thing is that Nigeria is such a unique Country and empirical research studies have shown that Wholesale copying of foreign interventions or practices ‘hook, line and sinker’, without some form of domestication and modifications to suit interval dynamics rarely produce the desirable outcomes. This does not mean that we have not learnt from Countries that have achieved the results that we crave for. It is just to emphasize that Domestic, Homegrown solutions have proved to be more relevant and enduring routes.  One of the most important lessons learnt from other Countries with vibrant and thriving Mortgage Systems is that they have enduring Structures that are functioning effectively. For instance, Countries have Housing Structures that emphasize different types of housing for different categories of people ranging from Apartment Houses/Flats, Town Houses and Condominium Housing Unit and also with different Ownership structures. The truth is that in the prevailing circumstances in Nigeria, not everyone would be able to afford ownership of a regular Bungalow or Duplex Types of houses. So, we would need to focus on exploring other types of housing and ownership structures for different Income Groups and Categories of People. For instance, Nigeria could develop a structure where people start with Bungalows, graduate to Town Houses, move to Single Family Residences at Empty Nests and down scale to Condominium at Old Age. Further, the Developed Housing and Mortgage Systems do not necessarily rely on homeownership as the only means to address the housing issues of the populace, as it creates adequate ambience for Rental Housing, Social Housing, Student Housing etc. and encourages Citizens to move through the maturation ladder to finally achieve Full Home-Ownership.

11. In partnering with the Government, what policies have you been confronted with that should be addressed?

The most crucial issues that need to be addressed are Macroeconomic Policies towards reducing Interest Rate on Mortgage Loans to Single Digit through efforts at stabilizing and downward reduction of the Foreign Exchange Rates and Inflation as both would address Cost of Funds to Mortgage Lenders with positive effect on Interest Rate to become lower and make Mortgages more Affordable.

Cost of Building Materials also need to significantly scale down, to make Housing Units to be built at lower Costs.  Reduced Cost, Time and Procedure for Title/Title Transfer should also be regarded as highly essential.

12. Based on your dealings with Governments, to what extent do policy shifts affect mortgage in Nigeria and would you say such policies are based on extensive research?

The truth is, since Mortgage is a financial issue, any Policy that affects the Financial Services Sector would ultimately have same effect on Mortgages directly or indirectly. And to the best of abilities and capacity of the Federal and State Governments, they have their internal dynamics that shape policy formulation.  However, there is ample room for significant improvements into the future.