How FMBN is Leveraging Mortgages to Deliver Affordable Housing to Nigerians
Terhemen M. Ikyaave
In an interconnected world where mortgages have become the prevailing method for achieving homeownership in many countries, Nigeria finds itself facing a significant challenge in embracing this widely accepted approach. Unlike countries such as the United Kingdom, USA, and France, where mortgages are commonplace, the wide scale adoption of this financing option remains alarmingly low in Nigeria.
This deficiency plays a substantial role in the country’s staggering housing deficit, which experts estimate to be between 17 and 22 million units, requiring trillions of Naira to make a meaningful impact. Understanding the capital-intensive nature of housing and the limited capacity of Nigerians to save, it becomes evident that to provide adequate housing for its citizens, Nigeria must urgently embrace and promote access to affordable housing finance, particularly through the adoption of mortgages.
To grasp the gravity of the situation, it is crucial to recognize that housing is a very expensive venture. Unfortunately, the combination of low wages and a high cost of living leaves millions of Nigerians with minimal room to save towards purchasing or constructing their own homes. Addressing this issue requires concerted efforts to bolster access to affordable housing finance, empowering individuals to finally attain the dream of homeownership.
This is where the promotion of mortgages as the preferred path to homeownership, a strategy employed by many countries worldwide, comes into play. By providing borrowers with the necessary funds to acquire a home, mortgages operate under the premise that the debtor will repay the loan, with interest, over the course of several years. In an ideal scenario, both the borrower and the lender benefit from this mutually advantageous arrangement.
It is worth emphasising that mortgages have proven to be a transformative force, enabling millions of people around the world to purchase homes. The beauty of mortgages lies in their ability to empower individuals who may not have immediate access to large sums of cash. With a mortgage, the prospect of purchasing a 10,000,000 Naira home becomes feasible, even if one does not possess that amount upfront. Instead, the payment can be spread out over an extended period, allowing borrowers to gradually repay the loan and eventually attain full ownership of the property.
In practice, a mortgage entails a lender, whether it be a commercial or mortgage bank, providing a loan to a prospective homeowner for the purpose of purchasing real estate. Before granting the loan, the lender meticulously evaluates certain criteria such as the borrower’s income level and financial capacity to repay the debt. It is important to note that if the borrower fails to fulfill their repayment obligations, including the interest accrued, the lender has the authority to foreclose on the mortgaged property and assume ownership.
The impact of widespread mortgage adoption is readily apparent when examining homeownership rates across different countries. For instance, the United States boasts a homeownership rate of over 65.1 percent, while the United Kingdom maintains a rate exceeding 67.69 percent. Remarkably, homeownership rates in Singapore and Indonesia reach 90 percent and 84 percent, respectively. Conversely, Nigeria’s homeownership rate stands at a meager 25 percent, significantly lower than countries such as Kenya (73 percent), Benin Republic (63 percent), and South Africa (56 percent).
FMBN: Empowering Nigerians with Long-Term, Single-Digit Interest Mortgages
In Nigeria, where affordable housing remains a pressing issue, the role of the Federal Mortgage Bank of Nigeria (FMBN) in providing access to affordable housing finance cannot be overstated. As a wholesale mortgage finance institution, the FMBN plays a crucial role in supplying primary mortgage banks with low-cost funds, enabling them to offer affordable mortgages to Nigerian workers. With notable features such as long payment tenors, single-digit interest rates, and low equity requirements, FMBN mortgage loans are instrumental in making homeownership more attainable for Nigerians across different income segments.
The FMBN mortgage loans stand out due to their minimal equity requirements. For loans up to N5 million, there is zero equity requirement, while loans ranging from N5 million to N15 million require only a 10 percent equity down payment. This flexibility in equity ensures that individuals with limited savings can still access mortgage financing. Additionally, FMBN mortgage loans offer competitive single-digit interest rates, ranging from six to nine per cent per annum. These favorable interest rates significantly reduce the financial burden on borrowers and enhance affordability.
Recognizing the need for manageable repayment terms, FMBN mortgage loans provide extended payment tenors of up to 30 years. This allows borrowers to spread their repayments over a longer period, resulting in more affordable monthly installments. The extended tenors align with the financial capabilities of borrowers, particularly low- and medium-income earners, enabling them to comfortably repay their loans without undue strain on their incomes.
The FMBN’s housing products are primarily available to contributors of the National Housing Fund (NHF) Scheme, a social savings program aimed at mobilising long-term funds from Nigerian workers, banks, insurance companies, and the government to promote access to affordable housing finance. Through the NHF scheme, FMBN grants concessionary loans to its accredited Primary Mortgage Banks (PMBs) at a 4 percent interest rate. These PMBs then offer loans to qualified workers who contribute to the NHF scheme at a modest 6 percent interest per annum. The ability to access these loans after just six months of continuous contributions is a significant advantage for NHF subscribers.
To address the housing needs of low- and medium-income earners, who form a dominant segment of the Nigerian population, FMBN has developed a rich portfolio of social housing products. These products are designed to provide affordable housing options tailored to the financial capacities of low- and medium-income earners, ensuring that they have equal opportunities to own homes and improve their living conditions.
FMBN: Balancing Housing Products with Workers’ Financial Capacity
The Federal Mortgage Bank of Nigeria (FMBN) has been at the forefront of innovation, striving to ensure that its housing products align with the financial capacity of Nigerian workers seeking homeownership. The bank introduced two creative housing products, in addition to the NHF Mortgage Loan, to cater to the diverse needs of aspiring homeowners. These initiatives aim to strike a balance between affordable housing options and the financial capabilities of Nigerian workers.
One of these innovative products is the Individual Home Construction Loan, specifically designed for NHF contributors who possess unencumbered land, appropriate land titles, and approved building plans. This loan empowers contributors by providing up to N15 million at a seven per cent interest rate, allowing them to undertake self-construction projects. The repayment period extends up to 30 years, taking into account the borrower’s age and remaining years in service. This product enables individuals to build their dream homes while benefiting from affordable financing and extended repayment terms.
The FMBN Rent-To-Own Housing Scheme presents another attractive option for Nigerian workers aspiring to own a home. This scheme offers a convenient and flexible payment arrangement, allowing workers to move into an FMBN-owned housing property as tenants and gradually make payments towards ownership. With monthly or annual installments spread over a maximum period of 30 years, workers can secure homeownership at an interest rate of just 7 percent. This initiative provides an accessible pathway to homeownership for those who may not have immediate access to significant upfront funds.
Recognising the importance of maintaining and improving existing homes, FMBN has significantly scaled up its Home Renovation Loan product. This worker-centric offering provides up to N1 million to homeowners for carrying out essential renovations and improvements. By empowering homeowners to enhance the quality and value of their properties, this loan ensures that individuals can enjoy the benefits of a comfortable and upgraded living environment without facing excessive financial strain.
FMBN: Expanding Housing Opportunities through Innovative Loan Programs
Recognising the importance of cooperative societies and the collaboration with key stakeholders, FMBN has enhanced its Cooperative Housing Development Loan (CHDL). This loan program allows cooperative societies that have acquired land to develop houses for their members. With attractive features such as tenors of up to 24 months, including a 12-month moratorium, and an interest rate of 10 percent, the CHDL facilitates the realization of housing projects. Qualified cooperative societies can access up to N500 million under this facility, providing them with the necessary resources to deliver homes to their members.
In a bid to strengthen collaboration and instill confidence among workers, FMBN approved and is currently implementing a National Affordable Workers’ Housing Scheme in partnership with key organizations such as the Nigeria Labour Congress (NLC), Trade Union Congress (TUC), and the Nigeria Employers Consultative Association (NECA). The scheme, launched in October 2018, aims to deliver affordable houses for Nigerian workers across the country. The first phase comprises approximately 1,400 housing units, located in twelve sites across the six geopolitical zones, including Lagos and Abuja. Each zone will have a minimum of 200 units. The second phase aims to deliver around 2,160 houses in fourteen additional locations. The housing options include finished semi-detached bungalows, as well as 1-, 2-, and 3-bedroom units in blocks of flats, catering to a range of housing preferences.
In February and May, the Bank under the leadership of Madu Hamman carried out a nationwide commissioning exercise of completed projects in in Borno, Adamawa, Yobe, Ebonyi, Ondo, Sokoto, Kogi, Katsina. Imo, Kano, Jigawa, Kwara States, as well as the FCT.
These initiatives demonstrate FMBN’s commitment to expanding housing opportunities and ensuring affordable homeownership for Nigerian workers. By strengthening the partnership with cooperative societies, FMBN empowers them to develop housing projects for their members. Additionally, the National Affordable Workers’ Housing Scheme exemplifies collaboration between FMBN and key stakeholders to deliver affordable homes across the country. These efforts address the housing needs of Nigerian workers, promote socioeconomic development, and enhance the overall welfare of the workforce.
The Federal Mortgage Bank of Nigeria (FMBN) plays a pivotal role in making homeownership more accessible and affordable for Nigerians. By leveraging the National Housing Fund (NHF) Scheme, the FMBN ensures that low- and medium-income earners have access to affordable housing finance. This empowers individuals to realise their dreams of homeownership and creates a positive impact on their financial well-being and quality of life. With the FMBN’s commitment to providing affordable mortgages, Nigeria can make significant strides in bridging the housing deficit and fostering sustainable socioeconomic development.
