Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos Chapter Monday identified short mortgage tenure practice as a major obstacle to effective housing delivery in Nigeria.
Orimalade told the News Agency of Nigeria (NAN) in Lagos that only few primary mortgage institutions in the country practised mortgage tenure beyond 10 years, saying, “financial institutions in the country offer loans not mortgages”.
He said the mortgage tenure as practised in many countries is beyond a minimum of 20 years, and urged that such a practice be adopted in Nigeria.
“In other countries, the mortgage is given out at low interest rate to enable affordability and profitability, but in Nigeria, mortgage is being given on short-term tenure with high interest rate. As a result, people are discouraged from applying for mortgage loans,” he said.
Orimalade said the substantial reliance on short-term credit to fund projects with long gestation period such as housing project, as obtained in Nigeria, had made it difficult for low and middle- income earners to own property.
“In the United States and United Kingdom, where mortgage scheme is vibrant, low-income earners own property because repayment is spread over 20 years at single digit interest rate,” he added.
According to him, housing is a long-term investment and should be financed with long-term loans to enable investors to recoup their investments.
The NIESV chairman urged that, for the mortgage scheme to be cheap and affordable, its funds should be sourced from the capital market or the pension fund.
“But in Nigeria, majority of housing corporations, mortgage institutions and agencies source their funds from commercial banks at high interest rates. The consequence of this is the high cost of housing currently being suffered in the country,” he said.
He said housing finance was central to the nation’s economic development, claiming that lack of adequate attention by government, however, hampered access thereby reducing its contribution to the gross domestic product.
“Currently, Nigeria’s mortgage banks charge between 19 per cent and 25 per cent interest rate. This could go higher, depending on the risk volume; this has affected the real estate’s potential as a goldmine for investors.
“If government really wants to stimulate the economy, a reduction in the interest rate on mortgage loan will be a masterstroke, and more people will embrace mortgage loan to buy and build houses, leading to increased activities in the construction sector,” he said.
Orimalade blamed the high mortgage interest rate on economic factors and the rate at which banks lent money to mortgage bankers, noting that when inflation rose over a single digit, mortgage rate did not come down.
According to him, there is the need for reduction in the inflation rate, and the Monetary Policy Rate (MPR) if the mortgage interest rate should come down.