Introduction
Mortgage housing finance is a critical component of the housing sector in Nigeria, as it enables individuals to acquire homes and improve their living standards. However, the development of mortgage housing finance in Nigeria has been slow, despite the country’s huge housing deficit. According to the Central Bank of Nigeria (CBN), the country’s housing deficit stands at approximately N17 million units, with an estimated annual demand of 700,000 units. The mortgage industry’s inability to meet this demand is attributed to various challenges that hinder the growth of mortgage housing finance in Nigeria.
An Evaluation of Housing/Mortgage Financing in Nigeria
An appraisal of mortgage financing in Nigeria shows that these measures have produced some salutary impact on the housing sector. No Available information reveal that about N1.065 billion was granted as loans and advances by the insurance companies to the housing sector between 1990 and 1998. This represented an average of 39.4 percent of their total loans and advances during the period. The analysis of the Primary Mortgage Institutions PMIs operations also indicates that loans to customers amounted to N5.987 billion within the period 1992 – 2001, just as the number of operators rose steadily to a peak of 280 in 1995 before it declined. Available information also reveals that the supply of credit by the Federal Mortgage Bank of Nigeria is grossly 13,000 which is inadequate to meet the growing demand. With regard to cooperative societies and state/local governments, evidence seem to suggest some increase in the level of funding although, there appears to be a respite in recent times owing to inadequate funds. In terms of fund mobilization, the national housing scheme recorded modest achievements as contribution to the scheme increased to over N20, 073.0 million by December 1997. As at end September 2000, FMBN mobilized a total of N5.8 billion from N1.8 million contributors to the NHF while it granted N375 million loans to 631 contributors through 20 primary mortgage institutions PMIs for the construction of houses. Overall, there is evidence of declining activities in housing finance generally. The average share of GDP invested in housing declined from 3.6 percent in the 1970s to less than 1.7 percent in the 1990s. In addition, between 1992 and 2001, the volume of savings and time deposit with the banks and non-bank financial institutions grew by 604.94 percent from N54billion to N385.2 billion. However, the proportion held by the housing finance institutions declined from 1.4 percent to 0.22 per cent in 1998, indicating a fall in the flow of funds into the housing finance sector.
Challenges of Mortgage Finance in Nigeria
Securing a mortgage in Nigeria presents numerous challenges that hinder many citizens from achieving homeownership. Various financial barriers stand in the way, and include expensive interest rates, limited property loans, economic instabilities and regulatory challenges.
High interest rates make mortgages unaffordable
One of the most significant barriers to securing a mortgage in Nigeria is the prohibitively high interest rates. Mortgage interest rates often range between 15 percent and 25 percent, making monthly repayments unaffordable for many middle-income earners This high cost of borrowing discourages potential homeowners from pursuing mortgage options.
Limited availability of mortgage financing
The Nigerian mortgage sector is still underdeveloped, with banks hesitant to offer long-term mortgage loans due to associated risks and economic volatility. A restricted supply of available properties drives many future buyers toward using inadequate funds such as their personal savings and unofficial loans, designed to fulfill real estate purchase needs.
Low financial literacy among potential homeowners
Many Nigerians lack adequate knowledge about mortgage processes, terms, and requirements. People who lack financial understanding face obstacles when trying to access mortgage opportunities. This in turn prevents them from obtaining beneficial loan provisions.
Economic instability affects mortgage accessibility
Fluctuating oil prices, inflation and currency devaluation leads to economic instability in Nigeria’s economy. Such economic factors lead to unpredictable interest rates and reduced lending capacity of banks, making both buyers and lenders cautious, thereby slowing down real estate transactions.
Short loan tenures increase repayment burdens
In Nigeria, mortgage tenures are often between 5 to 10 years, unlike the 20 to 30 years common in other countries. The brief mortgage repayment duration leads to elevated monthly payments that makes the process difficult for buyers to afford.
Underdeveloped credit systems hinder loan approvals
The current state of development in Nigeria’s credit scoring structure hinders financial institutions from accurately evaluating their customers’ creditworthiness. Higher loan standards established by banks create significant hurdles for people with short credit histories, who want to obtain financial backing from banks.
Bureaucratic processes and regulatory challenges
The bureaucratic process required to complete real estate deals in Nigeria takes up a lot of time and requires significant and requires significant financial resources. Extended processing times lengthen the verification process of land titles, property registrations and loans, which causes prospective homebuyers to stay away from real estate acquisition
The Way Forward
The financing of national housing programmes should be viewed primarily as a national responsibility. The private sector should be encouraged to provide the bulk of actual investment funds for housing middle income and upper income groups. For the low income group, however, continued public support, individual initiative and labour movement involvement, will be required for housing and community development. Empirical evidence shows that private sector participation in housing is the most assured way to induce stability in the market.
Indeed, the role of Government should emphasize creating an enabling environment to stimulate private sector participation in long-term housing finance. This includes provision of physical infrastructure, enhancing the soundness and competitiveness of mortgage finance institutions and developing property rights.
The housing fund contribution should be integrated into the personal income taxation system such that a defined proportion of taxes paid are allocated to the housing fund pool, as it was done in Singapore.
There is need for constant re-engineering of the capital and money markets in order to cope with the renewed challenges of provision of some mortgage financing. In this regard, the restructuring and strengthening of the FMBN becomes imperative for it to remain a viable financial institution with the capacity to enhance efficient housing finance development in Nigeria.
Cooperative and savings and credit institutions are complementary organizations in the housing sector. Savings and loan investment funds may be better able to serve low-income families if they are channeled through cooperatives. In fact, the cooperative societies may be necessary to encourage savings and loan associations to finance genuine low-income housing, since it enables small individual savings to be pooled into a collective mortgage. These complimentary roles should therefore be encouraged.
In addition to funds through regular budgetary and fiscal programmes, there is need to put in place other measures to boost available investible funds in this sector. This may include the introduction of special – purpose bonds designed to attract institutional investors, firms and individuals to participate.
New sources should be explored through the development of a variety of instruments for the mobilization of fund from the capital market. This include, the large-scale securitization of mortgage portfolios, a mechanism that has remained the primary engine of growth in the housing finance systems of the United States, Germany, France and Italy to name only a few. For example, the National Housing Fund in South Korea thrives on, not only the deposit subscriptions, but also housing bonds issued by the Housing Bank to finance housing development programmes.
Therefore, broadening the capital market to encourage sales and exchange of housing-related securities, i.e. housing bonds, mortgages, loan participations and certificates, can generate additional leverage. This is an important means to attract short or medium-term investment fund into the sector. There is need to continue with sound economic and monetary policies to overcome the negative effect of inflation on housing and other construction finance, which require long-term credit in the country. This is because high and persistent inflation erodes the real value of money and is a major obstacle to the extension of long term credit.
Recommendations
1. Government Support: The government should provide support for the development of mortgage housing finance, including the establishment of a robust long-term funding mechanism and the introduction of affordable housing schemes.
2. Regulatory Reform: Regulatory authorities should reform the regulatory framework governing mortgage finance to promote standardization and consistency in mortgage products and services.
3. Investment in Credit Information Infrastructure: The government and financial institutions should invest in improving the credit information infrastructure to facilitate the assessment of creditworthiness of borrowers.
4. Public-Private Partnerships: The government and private sector should collaborate to develop affordable housing schemes and increase access to mortgage finance.
Conclusion
Mortgage housing finance is critical to addressing Nigeria’s housing deficit, but its development is hindered by various challenges. Addressing these challenges requires a collaborative effort from the government, financial institutions, and regulatory authorities. The establishment of a robust long-term funding mechanism, introduction of affordable housing schemes, land title reform, improvement of credit information infrastructure, standardization of mortgage products and services, and reduction of transaction costs are essential for promoting mortgage housing finance in Nigeria. The Bank should intensify its surveillance and supervision of mortgage institutions to ensure their growth and development. Encouragingly, distress in the sector is being addressed. With the public’s positive response and stakeholders’ cooperation, I believe the challenge of inadequate housing sector funding will be resolved soon.
By: ESV. Oyebanji Qudus Babatunde, a Principal Partner at Qudus Oyebanji & Co. He is an Associate Member of Nigerian Institution of Estate Surveyors and Valuers with Membership M2071.
Phone Number: +234 8033086802. Email: tqudus@yahoo.co.uk
Office Address: Office Address: 52, Ladipo Labinjo Crescent off Akinsemoyin Street off Bode Thomas Street, Surulere, Lagos State.
