Sonnie Ayere is the Founder of Dunn Loren Merrifield, an investment firm, and Chairman of Mortgage Warehouse Funding Limited. In this interview with MAUREEN IHUA-MADUENYI, he says stakeholders are doing everything possible to open up the mortgage market
Why do you think Nigerians still buy houses with cash despite all the efforts put into the development of mortgage in the country?
It is the issue of interest rate on mortgage; it is very high and makes the process very expensive. So that even with a tenor of about 20 to 25 years, people are reluctant and those who take mortgages pay it up as quickly as they can.
In other words, any little money they get, they put it into paying up their mortgage loan, because it is just so expensive at about 22 to 25 per cent interest rate. Secondly, when you calculate the payment with the income ratio, it is also very high; a lot of people cannot afford it.
When you look at the percentage you have to pay to the banks and the percentage of the income you have, it becomes difficult. Let’s say you earn N1, 000, under normal circumstance, your mortgage should not be more than N300; but when you calculate the interest rate of these mortgages, they take up about 60 to 65 per cent of your income, and you can’t use that much to repay mortgage loans.
So, that is one of the reasons why people still use cash; the real issue is the interest rate. But we are working on solving the problem now. For instance, the Nigerian Mortgage Refinance Company has been set up to provide long-term financing to mortgage banks with 20-year tenor.
The second is the setting up of the Mortgage Warehouse Funding Limited, which is there to provide short-term local currency, competitively-priced funding to mortgage banks in a bid to enhance their mortgage origination. Most people do not have mortgage bank accounts and therefore it is difficult for mortgage banks to sort out mortgage funds. In commercial banks, people always deposit money so it is easy to get funds, but mortgage banks do not have that kind of privilege to provide short-term funding to investors.
So, the MWFL goes to the market, raises money and gives to the mortgage banks to create mortgages, which will work for about six months before the NMRC will do a refinancing by then giving the mortgage bank 20-year money. We are also creating a very comprehensive mortgage and foreclosure law and some states are beginning to pass these laws. The Managing Director of the NMRC, Prof. Charles Inyangete and his team got Kaduna State to pass the law, so when people don’t pay their mortgages by defaulting, the bank can retrieve the property and put it back in the market to get back their funds.
What we intend to do with the mortgage warehouse is also to qualify developers and ensure that they can get off-take letters to enable them obtain financing from commercial or merchant banks to build houses. The MWFL now has eight mortgage bank members that are willing to provide mortgages to all buyers of the developers to give comfort to the commercial or merchants to provide construction finance.
The most important thing that will now help the market to open up is to get the interest rate down.
How can that be done?
It is difficult, in the sense that basically it is all based on economic realities. But, again the government is looking for offshore funding and this is now helping to drive down interest rates. It also depends on the Central Bank of Nigeria. These are some of the things that are being done but again, we have to look at some other ways to resolve the matter such as coming up with innovative ways of encouraging pension funds to support the sector on a win-win basis. That way, mortgage banks can get liquidity.
Stakeholders are doing everything possible to open up this market so that people can pay for houses on a pay-as-you-earn basis and not with cash because it is difficult to buy a house for N30m when you earn N7m a year. We are trying to move the country away from that. Mortgages should be able to help people to create wealth.
There appears to be low awareness on how mortgage works. What are stakeholders doing about this?
Most people are aware of how it works; the thing is that just like the way banks are able to advertise regularly about their products, mortgage banks are not able to do the same thing. The reason for that is because the industry itself has not been boisterous. When mortgage banks start making good money and growing, I am sure there will be lots more educative messages because it is in their interest for people to know about mortgages.
It is because they don’t have the funding capacity to create mortgages and when people hear of the interest rate, they run away. We need to find a way to make it attractive to people. Imagine if someone advertises 20-year mortgages at 8.5 per cent in the newspaper, most people would jump at it. It is about having a package to sell to the people. It is not like people don’t want the mortgages but they have to have something that is attractive; 20 to 25 per cent interest rate is not exactly attractive.
How effective have the initiatives you talked about been in addressing these issues?
NMRC has done its first refinancing, it is about to do another refinancing and the whole idea is that once MWFL launches and begins to do its first funding, then it becomes a continuous thing. What will happen is that mortgages will then have a one-month funding period. For instance, mortgage generated in January will be funded at the end of the month or say first week of February and those mortgages will remain on the bank’s balance sheet for a minimum of a six-month period, or say till the end of June after which it will then be refinanced by the NMRC. Then the next batch again in February will be refinanced in July, March will be refinanced in August and so on. It will create a situation where mortgage banks will feel confident to go out and market their products knowing that they have the wherewithal to provide the funding.
It will be good to add that by the end of 2018, we will be able to say this is what we have been able to achieve and as interest rates go down, mortgages will grow even more.
Going by all the initiatives, have there been any significant increases in the volume of mortgage origination?
The NMRC is designed to provide long-term financing to mortgage banks, so the reason it hasn’t had much impact is that it is waiting for the mortgages to come through. So, what is being done through the MWFL is help to create the mortgages; that is what it is there for. The impact of the initiatives will begin to show with the strength of the MWFL. As MWFL begins to seal mortgage origination, it will create the pool for the NMRC to refinance.
So the NMRC has begun to do its bit by refinancing the legacy mortgages that existed in the member mortgage at the time. So what they need is really consistent funding for the banks to be able to continue to create those mortgages. MWFL will do its first funding in January (This month) and will on monthly basis provide money to mortgage banks.
Hopefully, whether on semi-annual or quarterly basis, the NMRC will then refinance the mortgages long-term. I think at the beginning of 2019, there will be a much stronger impact in the mortgage sector than we have ever seen before.
What plans are in place to get back the trust of property buyers who have lost faith in the system?
Even if this government doesn’t bother to bring down the interest rates, stakeholders are looking for other ways to see that this happens and it will be a collaborative effort between the mortgage banks, CBN, National Pension Commission, Mortgage Banking Association of Nigeria, the Ministry of Finance and others. Even though the economy may not be right, they could say let us use these pool of funds to create mortgages and begin to get Nigerians on the housing ladder and on the road to wealth creation.
I agree a lot still needs to be done on enlightenment. When the system takes off properly, there will be literacy campaigns for the people to properly understand how it works and the repayment responsibilities.
The system is one I would love to see change and that is why we stakeholders are working to create a system of pay-as-you-earn. Except we are able to create something like this, it will be difficult to help people out of the pressure that they feel and how expensive it is for people to buy their homes which is why we are not getting the mortgage-GDP ratio that we require.
With the housing deficit we talk about in Nigeria, even if we are building a million houses a year, it will take 20 years to reduce is. So, it gives an idea of how enormous the issue is and how it is important that we get people unto the mortgage ladder and I believe that the process will begin this year.