Worldwide, mortgages take the lead as the preferred means for owning a home. In countries such as the United Kingdom, USA, France, and other OECD (Organisation for Economic Co-operation and Development) countries, it is rare to see people paying outright for homes using savings, loans from friends, family members or cooperative societies.
In Nigeria, the widescale adoption of mortgages as a popular path to owning homes is still extremely low. This situation needs to change. It explains in part, the country’s high housing deficit that is estimated by experts to hover between 17 to 22 million housing units with trillions needed to make any significant dent on it. Fact is that housing is a capital-intensive venture.
A combination of low wages and high cost of living give millions of Nigerians little room to save towards purchasing or building their homes. For Nigeria to properly house its citizens, greater efforts need to be made to bolster access to affordable housing finance to enable them to own their homes.
To tackle the problem of access to affordable housing finance, many countries across the world have promoted the adoption of mortgages as the preferred path to homeownership. The mortgage process entails the granting of monies to obtain a home with good faith that the debtor will repay the loan with interest attached to life of it. Both the debtor and lender benefit if nothing goes wrong.
Over many years, the borrower repays the loan, plus interest, until she or he owns the property free and clear. Mortgages have helped millions of people all over the world buy homes. Even if you do not have N5,000,000 cash, you can buy a N5,000,000 home using a mortgage and pay gradually over time till you defray the loan.
So, essentially, a mortgage is a loan that a lender, which could be a commercial or mortgage bank, gives to a potential homeowner to purchase a house or other real estate. Before mortgage lenders give loans, they check to see if you meet certain requirements such as your income level, your financial ability to pay back the loan. The lender can take ownership of, or foreclose on, the property you have mortgaged if you do not repay the money borrowed, plus interest.
High mortgage adoption leads to high homeownership levels. In the United States it the proportion of households that are occupied by the owners is over 65.1 percent. In the United Kingdom, homeownership rate is above 67.69 percent and 90 percent and 84 percent in Singapore and Indonesia, respectively.
As expected, the situation is different and worrisome in Nigeria. We boast a homeownership rate of about 25 percent, which is much lower than even Kenya – 73 percent, Benin Republic – 63 percent and South Africa 56 percent.
Longer Term, Single-digit Interest Mortgages
It is against this backdrop that the role of the Federal Mortgage Bank of Nigeria (FMBN) in boosting access to affordable housing finance is so significant. Established as a wholesale mortgage finance institution the FMBN provides primary mortgage banks with low-cost funds to provide affordable mortgages to Nigerian workers. Notable features of FMBN mortgage loans include zero equity requirements for loans less than N5 million, and 10 per cent equity down payment for loans ranging from N5 million to N15 million. Others include single digit interest rates ranging from six to nine per cent per annum and long payment tenors of up to 30 years.
FMBN’s housing products are available to contributors to the National Housing Fund (NHF) Scheme, a social savings scheme designed to mobilize long-term funds from Nigerian workers, banks, insurance companies and the government to boost access to affordable housing finance.
The Bank also has a rich and impressive portfolio of social housing products that target a key and dominant segment of the Nigerian population: low to medium income earners.
Consider the FMBN NHF Mortgage Loan and its unique structuring to serve the ordinary Nigerian worker. FMBN leverages funds from the NHF scheme to grant concessionary loans to its accredited Primary Mortgage Banks (PMBs) at a four per cent interest rate. The mortgage banks in turn use these funds to give loans to qualified workers that contribute to the NHF scheme at 6 percent interest per annum with payment tenors of up to 30 years.
Loans under N5 million attract zero equity down payment while loans ranging from N5 million-N15 million attract. Subscribers are qualified to apply after only six months of continuous contributions to the scheme. The terms and features of the NHF Mortgage loan are highly affordable and reduce the financial pressure on the meagre incomes of beneficiaries.
For comparison, interest rates on housing loans in the open market range from 18 per cent to 25 per cent per annum, while maximum loan repayment tenors hover between 10 – 20 years. Most commercial banks and mortgage lenders also require that applicants provide between 30 percent to 50 percent equity contribution before loans are processed and possibly approved for disbursement.
Balancing Housing Products and Workers’ Financial Capacity
Besides the NHF Mortgage Loan, FMBN has been innovating to ensure a proper match between its housing products and the financial capacity of an average Nigerian worker looking to own a home. In the past three years, under the dynamic leadership of Arc. Ahmed Dangiwa, the bank developed and introduced two creative housing products.
The first is the individual Home Construction Loan. The loan enables NHF contributors with unencumbered land, appropriate land titles and approved building plans to undertake self-construction. The loan provides up to N15 million to contributors to the NHF scheme at seven per cent interest rate. Beneficiaries can pay back over a period of up to 30-years depending on their age and number of years left in service. The second product is the FMBN Rent-To-Own Housing Scheme. The scheme offers an easy and convenient payment arrangement towards homeownership for Nigerian workers. It makes it possible for a Nigerian worker to instantly move into an FMBN-owned housing property as a tenant and conveniently pay towards ownership of the property in monthly or annual instalments over as long as 30 years at an interest rate of nine per cent.
Another equally interesting and worker-centric affordable home ownership product that FMBN has upscaled significantly within the past three years is the home renovation loan. The loan provides up to N1 million to enable beneficiaries who already own their homes to carry out improvements. In the past three years alone, about 43,000 Nigerians have benefitted from this facility.
FMBN has also revamped its legacy Cooperative Housing Development Loan (CHDL) in line with the initiative of the Minister of Housing, Babatunde Raji Fashola to adopt cooperative societies as the channel for the aggregation and delivery of houses to members of cooperative societies. The Minister launched the National Cooperative Housing Scheme starting with the North Central and North Eastern geopolitical zones in Abuja and Gombe on 17th and 20th February 2020, respectively.
The FMBN CHDL enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members. Key features include tenors of up to 24 months with a moratorium of 12 months and interest rate of 10 per cent. Up to N500 million is accessible by qualified cooperative societies under the facility.
To strengthen collaboration and confidence of workers who are the main contributors to the NHF scheme, the bank approved and is currently executing a National Affordable Workers’ Housing Scheme in partnership with the Nigeria Labour Congress (NLC), Trade Union Congress (TUC) and the Nigeria Employers Consultative Association (NECA), to deliver affordable houses for Nigerian workers. The first phase of the scheme was launched in October 2018 aimed at delivering about 1,400 units. Analysis show that a significant number of the sites are advanced levels of completion and commissioning. Upon completion, FMBN will provide mortgage loans to beneficiaries to enable them to own those houses.
Bold Policy Actions Required to Reverse Trend
To reverse the housing deficit in the country, bolder and more aggressive policy actions are required by governmental authorities to strengthen both the demand side of housing in the country as well as the supply side. This entails supporting existing institutions such as the FMBN to scale their operations for greater impact. The recent announcement by the Central Bank of Nigeria (CBN) that it plans to inject about N500 billion into the housing sector is a right step in the right direction.
One sustainable way to guarantee judicious usage of the funds and ensure direct impact on those who really need homes in the country is leveraging the institutional framework that the FMBN already provides and increasing the capacity of the bank to give more affordable loans to Nigerian workers.
For one, the bank has the largest registry of potential homeowners in the country. As at April 2020, FMBN had recorded over five million contributors to the NHF Scheme, that the bank manages on behalf of the government. The list of subscribers includes civil servants, workers in the private sector, self-employed persons, traders etc with comprehensive information about their income levels and financial capacity to pay back mortgage loans. Deploying part of the CBN stimulus funds to enhance FMBNs’ ability to provide loans to subscribers to the NHF scheme will be a good start point for any housing intervention.
Housing Products that Target Low-Medium Income Earners
Another related point is sustainability and affordability. Interventions must be anchored on institutions and proven systems with track record of delivery and improvements over the years. FMBN has maintained a trajectory of high performance over the past three years under the Dangiwa-led management with key reforms that are gradually improving service delivery and creating historic impact. Overall, to achieve high mortgage penetration levels in the country and increase homeownership rates, especially within the low-medium income segments of the economy, there is of course the need to think outside the box giving the perennial stagnation of growth in the sector. But re-inventing the wheel is not an attractive option. A low hanging fruit is to empower strong institutions and systems that have shown capacity to deliver affordable housing to do more. FMBN presents one such platform as the CBN seeks to stimulate growth in the sector. The current board and management should, therefore, be encouraged, and its finances bolstered to enable it to create greater impact as the foremost government tool for social housing delivery.
Ikyaave is a public policy analyst based in Abuja