The underlining principle of mortgage in Nigeria and any other country in the world states that a loan seeker must have a regular flow of income, which presupposes that such a person must be in paid employment or be self-employed.
Having a job is pertinent in accessing mortgage. But in Nigeria, many people, especially young Nigerians are not employed. Indeed, youth unemployment in the country is a major social challenge in the country and the level is quite high.
At 23.1 per cent in the third quarter (Q3) of 2018, up from 18.8 per cent in Q3 2017, Nigeria has one of the highest unemployment rates in the world and the figures put out by Nigeria Bureau of Statistics (NBS) in its Q3 2018 report confirm this.
The report explains that “Of the 20.9 million persons classified as unemployed as at Q3 2018, 11.1 million did some form of work but for too few hours a week (under 20 hours) to be officially classified as employed while 9.7 million did absolutely nothing.
“Of the 9.7 million unemployed that did absolutely nothing as at Q3 2018, 90.1 percent of them or 8.77 million were reported to be unemployed and doing nothing because they were first time job seekers and have never worked before”.
Apart from clarity of process, accessibility and affordability are major constraints that have denied many aspiring young and old Nigerians the opportunity of either building or buying homes. Mortgage is not accessible because many people, as pointed out above, are out of job.
Adeniyi Akinlusi, CEO, Trustbond Mortgage Bank, puts it straight that, though the ability of the banks to provide money for mortgage has changed on account of credit challenges in the financial system, mortgage affordability or the fundamentals for lending have not changed.
Technically speaking, there is no mortgage of any form in Nigeria. This is because the interest rate charged is no different from the commercial rate. Mortgage lenders still anchor their loans on good jobs that attract fat monthly salary, meaning that a mortgage loan seeker is still expected to be somebody in a good job or private business with an assured, fat and regular income stream.
Though there is a new mortgage law otherwise called uniform underwriting standard for the informal sector, it is left to evaluate how impacting the new law has been on mortgage lending and home-ownership. The income of some of these informal sector operators can hardly be measured and, so, can hardly be controlled in a formal way.
As against the six percent interest rate and repayment tenor of between 25 and 30 years, depending on the borrower’s age, mortgage lenders in this country charge between 17 percent and 22 percent interest rate on mortgage loans with a repayment tenor as short as 12-24 months. The tenor also depends on the level of risk associated with either the loan or the borrower or both.
Because of this, the ever widening housing demand supply gap can easily be blamed on the commercial interest rate charged on mortgage loans which makes such loans hardly affordable to home loan seekers.
The mortgage industry does not operate in isolation of the economy. Certainly, as an integral part of the economy, it has to be affected by the economic crisis in the country today. A good number of people who were in employment before now do not have jobs again because of the downturn in the economy.
In spite of this, mortgage operators insist that the fundamentals for lending have not changed, which means that if somebody has a good job with a financial institution or a multinational company, and the pay package is high enough for him to afford a mortgage, the economic crisis has not changed that affordability.
The past few years have seen quite a number of mortgage products aimed at enabling subscribers own their own homes, but these products are yet to help reduce existing housing gap by increasing housing stock. The reason is simple. The products, like the mortgage loans, are hardly accessed by those who need them and, according to mortgage operators, those mortgage products are not the ones that will make any impact on housing.
“The mortgage products that we have today are commercial mortgages which the investor wants to recover his money from. It is just like someone else who has invested in any other venture. He has to recover his money because he borrows from the same place like you”, an operator who did not want to be named, noted.
Mortgage products can make impact on housing only when there is government intervention and, anywhere else in the world, there is government intervention to make mortgage affordable to everybody, no matter the income level.
As obtains in other societies, mortgage could be used to move the economy from being import- dependent to a producing and exporting country and Akinlusi says mortgage institutions need long term loans for housing finance. When there are enough funds to lend to property developers and to home seekers, the entire economy will be stimulated.
By the time there are enough funds in the hands of mortgage institutions for long term loans to property developers, there will be a lot of property construction activities and when these happen, a lot of other activities will be generated and the economy will be better for it.
Engineers, architects, bricklayers, casual labourers and even food vendors will be automatically engaged by a single development in one corner of the city, and it is unimaginable what is possible when there are many of such developments going on at various parts of the country. The long term effect is the development of industries and factories that produce building materials such as cement, rods, roofing materials, wooden materials etc.
Ultimately, this will impact on the wider economy and your guess is as good as mine as to what follows when people have enough capital at their disposal. Definitely, investment is the next line of thought and, depending on the prevailing business environment and government policies, people will invest in many asset classes including real estate.