Central Bank of Nigeria (CBN) is at the final phase of commencing mortgage subsidy, with plans for the country to have a single-digit interest rate before the end of 2019, an Abuja-based industry player told Businessday on Tuesday.
According to the source that is part of the committee working on the mortgage policy in Nigeria, the recent removal of the cap MRP+ 5 percent on mortgage interest rate by the apex bank is in line with the plans for the regulator to achieve the single-digit mortgage rate.
“The new policy is in preparation for the single digit interest on mortgages. The CBN has gotten to the board of governance for approval and before the year ends they would have commenced the subsidy and mortgages will be accessed with single digit interest,” the source said on the condition of anonymity.
High mortgage rate is considered one of the key culprits of Nigeria’s housing challenge. Typical mortgage in Nigeria ranges between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, one of the highest in the world.
This has made mortgage as a means of acquiring properties in Nigeria a less attractive option especially for many whose purchasing power was eroded from the country’s five quarter recession.
With the highest population in Africa, Nigeria has housing deficit of more than 17 million units and more than 90 percent of new homes that are built in the country utilise funds from personal savings.
With single-digit interest rates in some other countries, mortgage industry contributes a significant amount to economic growth and development this is however not the case in Nigeria as the roaring inflation rate and the attendant high mortgage rate has not only dampened housing demand but has reduced developers’ investment appetite.
Africa’s largest economy has one of the world’s lowest mortgages to Gross Domestic Product (GDP) ratio at 0.6 percent. This lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the US and UK rates of 60 percent and 70 percent, respectively.
“The biggest problem in the sector is high cost of the very limited mortgage that is available. If they can develop policy to ease housing finance, it will be impactful,” Wole Olabanji, the CEO of Cobuildit, a Lagosbased real estate firm, said.
On the September 6, 2019, the CBN said in a circular signed by Kevin Amugo, director, financial policy and regulation department, that the “maximum MPR + 5%” was no longer applicable to all financial institutions in Nigeria.
According to industry players, the new CBN policy could see mortgage rate climb even higher than the current rates, as financial institutions will no longer have a regulated cap added to the MPR.
“I think the Central Bank is trying to see if the market can regulates itself,” Roland Igbinoba, founder, Pison Housing Company, told Businessday by phone.